Public Regulatory Reform and Management Earnings Forecasts in a Low Private Litigation Environment

This study seeks to examine the impact of the continuous disclosure regulatory reform on the likelihood, frequency and qualitative characteristics of management earnings forecasts in New Zealand where a low private litigation environment prevails. This provides a unique opportunity to study the impact of a public regulatory reform in the absence of any viable private enforcement alternative. Using a sample of 720 management earnings forecasts issued by 94 firms listed on the New Zealand Stock Exchange during the financial reporting periods ending from 31 January 1999 to 31 December 2005, we provide strong evidence of significant changes in management earnings forecast behaviour in the post-regulatory reform period. Specifically, firms were more likely to issue an earnings forecast to pre-empt their earnings announcements and forecasting firms provided a greater number of earnings forecasts which were also more precise and accurate. These findings add to the concurrent evidence that the enhancement of public enforcement in New Zealand has had positive impact on corporate behaviour and capital market characteristics in an environment where there is a very low threat of private enforcement. This may indicate that public regulatory reforms are able to have a greater benefit where low private litigation environment prevails. This study provides insight into the impact of a public regulatory reform on corporate disclosure behaviour which may contribute to the debate regarding the value of further public regulatory reform of corporate requirements internationally