| Motivated by voluntary disclosure theory, I examine the relation between innate and discretionary accruals quality (AQ) and management's earnings forecast decisions. I argue that AQ provides an indication of the quality of managers' earnings-related information, as accruals that are of higher (lower) quality presumably arise from higher (lower) quality information. Further, I argue that the two components of AQ, innate and discretionary, have opposite relations with information acquisition costs, an important theoretical determinant of disclosure. Specifically, higher levels of innate AQ suggest managers bear low information acquisition costs, leading to a positive association with forecast activity. Conversely, higher discretionary AQ indicates greater information acquisition costs, yielding a negative theoretical association with voluntary disclosure. I find evidence consistent with these predictions. Further, improvements in innate AQ correspond to a higher (lower) likelihood of starting (stopping) a policy of forecasting and increases in forecast frequency, though I find no relation between changes in discretionary AQ and changes in forecasting policy. Finally, as predicted, innate AQ interacts with several previously identified determinants of forecasting, including institutional holdings, abnormal audit fees, product market competition, and litigation risk. Overall, my results are consistent with theory suggesting both information quality and information acquisition costs play important roles in managers' forecasting decisions. |
