Customer value disclosure and analyst forecasts: the influence of environmental dynamism
Abstract
Purpose
The purpose of this paper is to study the economic benefits of a pro-active disclosure strategy in a dynamic environment. More specifically, the paper explores the relationships between customer value disclosure, analyst following, and earnings forecasts, taking into account environmental dynamism as captured by R&D intensity, sales variability, and the reverse of industry concentration.
Design/methodology/approach
The paper considers the possibility that a firm's information dynamics may simultaneously affect disclosure strategy, analyst following, and analyst forecasts. Regression models are used in the testing of the hypotheses.
Findings
First, results show that customer value disclosure is positively associated with analyst following and consensus in analyst earning forecasts. Second, environmental dynamism enhances the association between customer value disclosure and analyst following as well as consensus among analysts. Those results suggest that customer metrics attract analysts and improve their ability to forecast earnings. Moreover, customer value disclosure appears particularly relevant for forecasting earnings of firms involved in dynamic environments.
Practical implications
Customer value disclosure would allow financial analysts to better assess future earnings in a context of uncertainty. Moreover, analysts may be reluctant to follow a firm facing high environmental dynamism without a clear corporate disclosure commitment. In such a context, managers may consider disclosing strategic information in an attempt to attract financial analysts.
Originality/value
The findings reveal that the relations between customer value disclosure, analyst following, and analyst forecasts are not straightforward but are affected by a firm's environmental uncertainty.
Keywords
Acknowledgements
This research was conducted with financial support from the fund for education and good governance of the Autorité des marchés financiers (Québec) and PWC. Information, opinions and views expressed in this paper are the sole responsibility of the authors. The content of this paper does not necessarily reflect the opinion of the Authority and PWC; any errors are the responsibility of the authors.
Citation
Josée Ledoux, M., Cormier, D. and Houle, S. (2014), "Customer value disclosure and analyst forecasts: the influence of environmental dynamism", Management Decision, Vol. 52 No. 3, pp. 460-481. https://doi.org/10.1108/MD-01-2013-0022
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited