Discretionary Disclosure and External Financing

 This paper documents a positive association between firms’ tendencies to access capital markets and to disclose earnings forecasts, suggesting that firms attempt to mitigate potential consequences of differential information through disclosure. Our evidence also indicates that firms financing externally are not significantly more likely to forecast in the period shortly before an offering than at other times. Therefore, while firms that issue more capital tend to issue more forecasts, forces such as legal liability deter them from more frequent forecasting around the time of an actual offering. The paper also documents that management forecasts are not systematically greater than analysts’ existing expectations, or than subsequently realized earnings. The data thus suggest that to the extent firms benefit from issuing favorable earnings forecasts when offering securities, competing forces such as potential legal liability and reputation costs deter them from issuing optimistic forecasts.