Abstract:
In this study, we design an empirical proxy for an unexplored construct – the speed of management forecast revisions. We test the validity of this proxy in a unique economy, Japan, where the provision of management earnings forecasts is mandatory. In addition, we investigate this proxy along with other existing disclosure proxies (namely, accuracy, frequency, and timeliness) in the auditing context. Our evidence shows that the initial forecast accuracy and revision speed are both higher for firms that employ a higher-quality auditor. While firms that employ a higher-quality auditor revise forecasts in a more timely fashion, these firms revise less frequently. We further partition the sample according to downward or upward forecast revisions, and find that with respect to downward forecast revisions, firms that employ a higher-quality auditor revise forecasts faster, more frequently and in a more timely fashion. However, with respect to upward forecast revisions, employing a higher-quality auditor does not have an effect on forecast revision speed, although it is associated with firms that issue less frequent, but more timely, forecast revisions.