Corporate Internationalization Strategy And Management Earnings Forecasts

With the continuous promotion of economic globalization and the deepening of China's reform and opening up,more and more Chinese enterprises actively respond to the national "going out" strategy,and achieve scale economy and sustainable development in a larger geographical space by opening up overseas markets.According to the statistics data,from 2007 to 2018,China's total export trade volume increased from 9362.714 billion yuan to 16412.878 billion yuan,with an average annual increase of more than 5%;China's net foreign direct investment increased from 26506.09 million dollars to 143037.31 million dollars,with an annual increase of more than 16%;meanwhile,the ratio of China's listed companies' average annual overseas business income to total business income also increased from 7.93% to 13.98%,indicating that going abroad and developing international trade and foreign investment,and participating in international market competition has gradually become a new development strategy mode of Chinese enterprises,and the international strategy is also becoming an important part of the strategic framework of Chinese enterprises.However,different from the international development mode of western enterprises which obtain excess profits in the international market by virtue of advanced monopoly technology and management experience,Chinese enterprises are generally faced with the disadvantages of lack of experience,backward technology and lack of resources in the process of internationalization practice,which makes the implementation of internationalization strategy just like a "double-edged sword" for Chinese enterprises.Which means that the implementation of internationalization strategy indeed brings development opportunities,but also increases the risks faced by enterprises,and intensifies the uncertainty of business environment and performance.In recent years,global trade protectionism is on the rise,and trade frictions is happening frequently,which makes many enterprises hold a wait-and-see attitude on whether to participate in the international market competition,and there are many puzzles in promoting the internationalization strategy.In the aspect of theoretical research,the problems related to the internationalization strategy of enterprises have always been a hot topic in the macro and micro fields of economics and management.Based on the international business modes such as export trade and foreign direct investment,the existing literature examines the impact of the corporate internationalization on regional economic growth,total factor productivity and labor productivity at the macro level,and examines the relationship between corporate internationalization and their business performance,earnings quality,social responsibility performance,investment and financing behavior,R & D innovation at the micro level.However,this paper finds that,on one hand,the study based on Chinese enterprises is rare in the existing literature,and it is doubtful whether the research conclusions of western capitalist countries can be directly transplanted to emerging market countries;on the other hand,how can the uncertain economic consequences caused by the internationalization strategy be transmitted to the external stakeholders in the form of accounting earnings information,few literature give full response.Theoretically speaking,due to the weak effectiveness of emerging markets,the accounting information disclosure behavior of emerging market enterprises will have an important impact on the economic decision-making of external stakeholders.Therefore,for international operating enterprises in emerging markets,timely and effective accounting information disclosure behavior is an inevitable requirement for the management to fulfill the fiduciary responsibility in compliance with the regulations,however,the existing research has relatively ignored a series of important issues such as the willingness of management to disclose accounting information,the disclosure behavior and the quality of disclosure under the background of enterprise internationalization strategy.In fact,the existing literature has pointed out that the enterprise's strategic mode is an important factor that may affects the information disclosure behavior of the management and also affects the information disclosure quality.Under different enterprise strategic modes,the information disclosure motivation and information disclosure behavior of the management will have significant differences.In view of this,taking China as a representative emerging market country as the sample,it has a strong theoretical basis and practical significance to deeply explore the information governance effects that may be caused by the implementation of the internationalization strategy at the corporate level.In the corporate governance system with the separation of ownership and management rights,high-quality information disclosure is an important way to alleviate the information asymmetry between internal managers and external stakeholders and improve the efficiency of capital allocation,and it is also an objective need for the healthy and stable development of the capital market.Compared with the backward historical accounting information such as regular financial report,the forward-looking earnings forecasts information is regarded as a kind of accounting information which is more timely disclosed and more conducive to the economic decision-making of the stakeholders,which has caused extensive concern in the capital market.But different from the western developed countries,China's listed companies implement the "semi mandatory earnings forecast information disclosure institution".Under this institutional background,when the listed companies predict that the operating performance will change significantly in the next performance reporting period,it is necessary to disclose the earnings forecasts to the public as required,which makes the earnings forecasts play a unique role in risk early warning.Existing literatures have found that different enterprises have great differences in the motivation and strategy toward the disclosure behavior of earnings forecasts,and corporate strategic mode is an important factor that affecting the willingness of management to disclose earnings forecasts and the quality of earnings forecasts.But further,whether and how the implementation of internationalization strategy affects the disclosure behavior of earnings forecasts are the important problems that existing studies did not provide an answer.In actual fact,in the disclosure practice of earnings forecasts of listed Companies in China,the uncertainty caused by international operation is becoming the important reason for the performance warning and risk warning of listed companies through the disclosure of earnings forecasts.According to the earnings forecasts data in Tai'an CSMAR database,in the 55252 earnings forecasts disclosed by China's A-share listed companies during2007-2018 with detailed "reasons for performance changes",4815 earnings forecasts,accounting for 8.71%,directly attributed the significant changes of performance to the enterprise's international operation and the uncertainty from the overseas markets,showing that the implementation of internationalization strategy and participation in international market competition are becoming the important reasons for the significant changes in the operating performance of listed companies.Therefore,based on the existing research results,and based on information asymmetry theory,signal transmission theory,principal-agent theory and relevant theories in the field of international trade,this paper deeply discusses the influence of corporate internationalization strategy on the information disclosure behavior of management earnings forecasts,and further clarifies the relevant mechanism,so as to provide empirical evidences at the micro level for evaluating the spillover effect of capital market in the implementation of internationalization strategy.The theoretical analysis and empirical research of this paper mainly includes the following three aspects.Firstly,the impact of internationalization strategy on management's voluntary disclosure of earnings forecasts.It is found that the implementation of internationalization strategy helps to improve the willingness of management to voluntarily disclose more earnings forecasts,and also improve the willingness of management to voluntarily disclose more bad news in the earnings forecasts.This conclusion is still valid after a series of robustness tests and endogenous tests,indicating that the internationalization strategy has positive significance in promoting the voluntary earnings information disclosure behavior of management.Using the intermediary effect model to test the mechanism,it is found that the implementation of internationalization strategy increases the operational risk,the information asymmetry inside and outside the enterprise,the overseas litigation risk faced by the management and the external financing demand of the enterprise.As a result,the management will increase the voluntary earnings forecasts information disclosure as a measure to hedge the above risks and uncertainties.At the same time,this paper further analyzes the impact of the international business environment on management's voluntary disclosure of earnings forecasts,and finds that the internationalization strategy itself also has high uncertainty,and the management will increase the voluntary information disclosure as an effective measure to deal with the uncertainty of the business environment caused by the internationalization strategy.In addition,this paper also analyzes the strategic motivation and behavior of the management on the disclosure time of the negative earnings information,and finds that the management will not deliberately delay the disclosure of the negative earnings information,on the contrary,it will disclose the negative earnings information as early as possible.However,the nature of management's seeking benefits and avoiding disadvantages has not changed.The management will make full use of timing disclosure to reduce the adverse impact of negative earnings information disclosure on the company's stock market value.Further test of economic consequences shows that increasing the disclosure of management earnings forecasts can help enterprises integrate private information into the stock price in time,and promote the improvement of the information content of enterprise stock price.In addition,this paper finds that the implementation of corporate internationalization strategy will have a negative impact on the market value of the enterprise in the short term,but for the enterprise implementing the internationalization strategy,the increasing disclosure behavior of the voluntary management earnings forecasts and the voluntary negative management earnings forecasts is helpful to improve the enterprise market value.Secondly,the impact of internationalization strategy on the management's behavior of earnings forecasts revision.It is found that the implementation of internationalization strategy will increase the management's revision of the disclosed earnings forecasts.The more internationalized the enterprise is,the more likely that the management is to disclose the revised announcement of earnings forecasts,and the more frequently they disclose the revised announcement of earnings forecasts.This conclusion is still valid after a series of robustness tests.In the mechanism tests,it is found that the implementation of internationalization strategy improves the competition intensity of enterprise product market,intensifies the heterogeneous fluctuation of enterprise stock price,and enhances the degree of information asymmetry between internal managers and external stakeholders.It not only promotes the difficulty of accurately predicting future earnings,but also subjectively urges the management to timely issue the revised announcement of earnings forecast when it is expected that the content of disclosed earnings forecasts are quite different from the actual performance of this period,and taking earnings forecasts revision as an optimal information disclosure strategy to adjust investors' expectations and improve the transparency of enterprise information environment.In addition,this paper also excludes the alternative hypothesis that the management revises the disclosed earnings forecasts based on earnings manipulation motivation,stock price manipulation motivation and the purpose of camouflage self-interest behavior.On this basis,this paper further analyzes whether the behavior of management's earnings forecasts revision can increase the information content of forward-looking earnings information of enterprises.This paper finds that with the increasing of enterprises' internationalization,the managers are more motivated to correct the untrue or inaccurate information in the previously disclosed earnings forecasts,which can transfer more incremental information to analysts and then promote the accuracy of analysts' earnings forecasts;at the same time,this paper also finds that for the enterprises implementing the internationalization strategy,the auditor did invest more audit time because of the management's behavior of earnings forecasts revision,but the auditor did not issue more non-standard unqualified audit opinions,which means that the management's behavior of earnings forecasts revision in the international enterprises do not lead to the increased risk of significant misstatement.Thirdly,the impact of internationalization strategy on the accuracy of management earnings forecasts.It is found that there is not a simple linear correlation between the implementation of internationalization strategy and the deviation of management's earnings forecasts,but a correlation similar to the U-shaped curve,which shows that with the increase of the enterprises' international operation,the deviation of management's earnings forecasts will show a trend of "decrease before increase".This conclusion is still true after a series of robustness tests,which further proves the objective existence of the above-mentioned U-shaped curve correlation.Using the intermediary effect model to test the mechanism,it is found that the non-linear changes of management risk-taking willingness,management performance expectation gap,supplier-customer relationship and enterprise agency cost caused by the implementation of internationalization strategy are the important reasons for the above-mentioned U-shaped curve correlation.Further analysis shows that the uncertainty of domestic economic policies plays a significant moderating effect in influencing the correlation between the internationalization strategy of enterprises and the deviation of management earnings forecasts,which shows that when enterprises' internationalization level is not high,the domestic economic policies with high uncertainty will weaken the governance effect of internationalization strategy in the information disclosure of management earnings forecasts.However,when enterprises' internationalization level reaches a certain degree,the fluctuation of domestic economic policies will not have a significant impact on the disclosure quality of the management earnings forecasts in international enterprises.In addition,this paper further analyzes and finds that the precision of the management earnings forecasts also plays a significant moderating effect in influencing the correlation between the internationalization strategy of enterprises and the deviation of the management earnings forecasts in the early stage of international operation,the management tends to transmit positive signals to the market through accurate performance forecast,so as to reduce the information asymmetry between internal managers and external stakeholders,and improve the trust of external stakeholders toward international enterprises;however,with the increase of internationalization of enterprises,the uncertainty from business environment and business performance faced by the management will also increase rapidly,at this time,the management earnings forecasts with high precision will increase the possibility that the management earnings forecasts will have significant deviation.The research contributions of this paper are mainly reflected in the following three aspects.Firstly,when discussing the influencing factors of information disclosure behavior of management earnings forecasts in the existing literature,it is generally agreed that the company's strategic choice is homogeneous,and few literatures pay attention to the influence of the company's strategic characteristics on the management's voluntary information disclosure behavior.However,in recent years,a small number of studies represented by Zhang et al.(2019)have found that the radical degree of corporate strategy and the range of strategic reform are important factors affecting management's behavior of voluntary earnings information disclosure,but there is no literature to further study the impact of enterprise internationalization strategy on the management earnings forecasts.In view of this,for the first time,based on the perspective of enterprise internationalization strategy,this paper expands the relevant research in the field of management earnings forecasts information disclosure,and clarifies the path and mechanism that the implementation of internationalization strategy affects the information disclosure behavior of management earnings forecasts.Secondly,based on the unique perspective of internationalization strategy,this paper makes a systematic analysis of the management earnings forecasts revision behavior,and clarifies the real reason of the management earnings forecasts revision behavior under the background of internationalization strategy,which enriches the research of influencing factors of the management earnings forecasts revision behavior.It is worth noting that the behavior of management earnings forecasts revision is an objective reality problem in the capital market with weak effectiveness.Compared with the western developed countries,the disclosure institution of earnings forecasts information of listed companies in China started late.In addition,the interests of managers and stakeholders often deviate in modern companies.The management,based on their own interests,has strategic disclosure motives such as concealment,delayed disclosure or false disclosure of forward-looking earnings information,resulting in some listed companies have some information disclosure problems,such as low precision of earnings forecasts,poor accuracy of earnings forecasts,frequent revision of earnings forecasts,large revision range and so on,which also cause many investors to hold a hostile attitude towards the revision of management earnings forecasts.The revision of earnings forecasts are even more and more labeled as "risk matters" by the capital market.The research of this paper is of practical significance to guide the stakeholders in the capital market to correctly,objectively and rationally understand the behavior of management's behavior of earnings forecasts revision.Thirdly,based on the disclosure institution of forward-looking earnings forecasts information,this paper discusses how the uncertain consequences caused by the implementation of internationalization strategy can be transmitted to the stakeholders of capital market by the way of prospective earnings information,and for the first time finds out the U-shaped(inverted U-shaped)relationship between the implementation of internationalization strategy and the deviation of management earnings forecasts(accuracy of management earnings forecasts),which reveals the governance effect of the internationalization strategy on the quality of management earnings forecasts.The conclusion of this study is helpful for the stakeholders of the capital market to more rationally,objectively and accurately judge the quality of the management earnings forecasts of the listed companies in different international operation levels.It is of practical significance to guide the international enterprises to improve the accuracy of the management earnings forecasts,restrain managers' manipulation behavior toward the earnings forecasts,and reduce the information asymmetry inside and outside the enterprises.