The Impact of Forward-Looking Information Quality on Analysts’ Behaviour – Evidence from Germany

We analyze the quality of forward-looking information in the management reports (MR) of listed German corporations and the impact of differences in that quality on analysts' behaviour. For several years, German corporations are bounded to provide forward-looking information separately for the three dimensions expected development, risks and opportunities. We utilize this unique setting and analyze the impact of the quality of each of the three dimensions on analysts' behaviour. In order to measure disclosure quality, we construct an index to evaluate overall quality of forward-looking information as well as the quality of the three information dimensions. To evaluate the impact of quality scores in each of the required disclosure dimensions on analysts' behavior, we conduct bi- and multivariate empirical tests. In the light of international efforts to provide or enhance management commentaries and particularly endow forward-looking information our results give insight on capital market effects of compulsory and structured disclosure of such information