An empirical examination of forecast disclosure by bidding companies

Abstract

This paper examines voluntary disclosure of profit forecasts by bidding companies during takeovers. Disclosure is examined from two perspectives: (i) factors influencing disclosure and (ii) the influence of good news and bad news on disclosure.

Takeover documents published during 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992 were examined.

Two variables accounted for almost all the influences on disclosure of forecasts: bid horizon and type of bid. Probability of forecast disclosure was greater the shorter the bid horizon and during contested bids. In addition, there was some evidence that the nature of the purchase consideration offered by the bidder (cash or paper) and the industry of the bidder influenced disclosure. Disclosure was significantly more likely in paper bids and in the durable goods industry.

Forecasts were more likely to be disclosed when firms had good news to report.