ABSTRACT Theory suggests that an ex ante commitment to voluntary disclosure may increase capital allocation efficiency and discipline managers to undertake more profitable investment. Consistent with this prediction, we find that a commitment to providing managerial earnings forecasts, a popular, forward‐looking and truly voluntary form of disclosure, is associated with greater capital allocation efficiency and more profitable exercise of firm investment opportunities ( IOS ). Our regression results are robust to controlling for financial reporting quality (FRQ) and other firm‐level determinants of investment efficiency and profitability, firm and industry fixed effects, alternative measures of IOS , alternative measures of future profitability, and adjustments for endogeneity in the voluntary disclosure commitment decision. We conclude that a commitment to voluntary disclosure through managerial earnings forecasts may benefit corporate investment efficiency and profitability.
Davis et al. (Tue,) studied this question.
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