Variable definitions
| Variable | Definition |
|---|---|
| Dependent variables | |
| FSD Score | The sum of absolute differences between the leading digit frequencies of actual annual financial statements data and the expected theoretical distribution prescribed by Benford's Law by number of leading digits (9; since leading digits are from 1 to 9) (Amiram et al., 2015) Annual Financial Statement data collected from Compustat database |
| Forecaster | An indicator variable that equals 1 if the firm issues at least one forecast in three out of four-quarters in a given fiscal year, and 0 otherwise (Rogers and Van Buskirk, 2009) Management forecast activity is obtained from Refinitiv Eikon |
| Number of Forecasts | Natural log of (1 + the number of forecasts issued in a given fiscal year) Management forecast activity is obtained from Refinitiv Eikon |
| Precision | Average precision of the forecasts issued over the fiscal year The precision of a forecast equals 4 for point estimates, 3 for range estimates, 2 for open-ended estimates, and 1 for qualitative estimates (Armstrong et al., 2014) Management forecast activity is obtained from Refinitiv Eikon |
| Specificity | Minus (average specificity of the forecasts issued in a given fiscal year) We measure specificity for all point and range forecasts issued in a given fiscal year For range forecasts, the specificity of the forecast is defined as the difference between the top and bottom of the range, divided by the stock price of the firm in the month before the forecast date. For point forecasts, Specificity equals 0. The variable Specificity equals the average specificity of the forecasts issued in a given fiscal year multiplied by −1. The variable is multiplied by −1 so that higher values represent more specific forecasts Management forecast activity is obtained from Refinitiv Eikon |
| Horizon | Natural log of (1 + average horizon of forecasts in a given fiscal year) The horizon of a forecast is calculated as the difference in days between the fiscal period-end date and the forecast date (Ball et al., 2012) Larger values of Horizon indicate timelier, and hence more informative, forecasts. Horizon is computed only for firms/years with earnings forecast and with non-missing forecast dates Management forecast activity is obtained from Refinitiv Eikon |
| Economic policy uncertainty measure | |
| LnEPU | Natural log of annualised economic policy uncertainty index (EPU) Sourced from Baker et al. (2016) |
| Control variables | |
| LnSize | Natural log of Market value of equity calculated by closing price at the end of the fiscal year (PRCC_F)*common shares outstanding (CSHO) Data collected from Compustat |
| Leverage | Long-term debt (DLTT) plus Debt in Current Liabilities (DLC) divided by Stockholders Equity (SEQ) Data collected from Compustat |
| Market-To-Book Ratio (MTB) | Closing price at the end of the fiscal year (PRCC_F)*common shares outstanding (CSHO) divided by Book value of total stockholders' equity (BKVLPS) Data collected from Compustat |
| Return on Asset (ROA) | Net income (NI) divided by Total Asset (AT) Data collected from Compustat |
| Inverse Altman's Z-Score (INVZ) | Calculated as the inverse form (−1 × Altman's Z-score) to ensure that higher values reflect greater financial distress risk Altman_Z = 3.3*(EBIT/AT)+0.99*(SALE/AT)+0.6*(MV/LT)+1.2*(ACT/AT) +1.4*(RE/AT) Data collected from Compustat |
| Cash Flow from Operations (CFOA) | Operating cash flows (OIBDP) divided by lagged Total assets (AT) Data collected from Compustat |
| Cash Flow Volatility (CASH VOL) | Standard deviation of cash flows (CF) over Total assets (AT) (5-year window) Data collected from Compustat |
| Sales Volatility (SALES VOL) | Standard deviation of sales (REVT) over Total assets (AT) (5-year window) Data collected from Compustat |
| GDP Growth | Annual percentage change in GDP. Provided by the Federal Reserve Economic Data (FRED) |
| VIX Index | Volatility Implied Index of US S&P 500 index options Provided by the Chicago Board Options Exchange (CBOE) |
| Variable | Definition |
|---|---|
| FSD Score | The sum of absolute differences between the leading digit frequencies of actual annual financial statements data and the expected theoretical distribution prescribed by Benford's Law by number of leading digits (9; since leading digits are from 1 to 9) ( |
| Forecaster | An indicator variable that equals 1 if the firm issues at least one forecast in three out of four-quarters in a given fiscal year, and 0 otherwise ( |
| Number of Forecasts | Natural log of (1 + the number of forecasts issued in a given fiscal year) |
| Precision | Average precision of the forecasts issued over the fiscal year |
| Specificity | Minus (average specificity of the forecasts issued in a given fiscal year) |
| Horizon | Natural log of (1 + average horizon of forecasts in a given fiscal year) |
| LnEPU | Natural log of annualised economic policy uncertainty index (EPU) |
| LnSize | Natural log of Market value of equity calculated by closing price at the end of the fiscal year (PRCC_F)*common shares outstanding (CSHO) |
| Leverage | Long-term debt (DLTT) plus Debt in Current Liabilities (DLC) divided by Stockholders Equity (SEQ) |
| Market-To-Book Ratio (MTB) | Closing price at the end of the fiscal year (PRCC_F)*common shares outstanding (CSHO) divided by Book value of total stockholders' equity (BKVLPS) |
| Return on Asset (ROA) | Net income (NI) divided by Total Asset (AT) |
| Inverse Altman's Z-Score (INVZ) | Calculated as the inverse form (−1 × Altman's Z-score) to ensure that higher values reflect greater financial distress risk |
| Cash Flow from Operations (CFOA) | Operating cash flows (OIBDP) divided by lagged Total assets (AT) |
| Cash Flow Volatility (CASH VOL) | Standard deviation of cash flows (CF) over Total assets (AT) (5-year window) |
| Sales Volatility (SALES VOL) | Standard deviation of sales (REVT) over Total assets (AT) (5-year window) |
| GDP Growth | Annual percentage change in GDP. |
| VIX Index | Volatility Implied Index of US S&P 500 index options |
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