The Confirmatory Role of Conditional Conservatism over Voluntary Disclosure

We study the links between conditional conservatism and voluntary disclosure of management private information. We argue that conditional conservatism acts as a mechanism that lends credibility to voluntary disclosure by providing a hard reporting benchmark that allows outsiders to better evaluate the truthfulness of management forecasts. Studying US firms, we find that more conditionally conservative firms: (i) issue more management earnings forecasts, (ii) have lower serial correlation in consecutive management forecasts errors, and (iii) experience stronger market reactions to their forecasts. This indicates greater credibility of hard voluntary disclosure. We find no evidence of this confirmatory role of conservatism for soft voluntary disclosures