The Taiwan Financial Supervisory Commission (FSC) changed its earnings forecast policy from mandatory to voluntary disclosure in 2005. The main reason for this change was that the regulations on mandatory disclosure of earnings forecasts encouraged managers to issue excessively optimistic earnings forecasts, which subsequently leads to reported earnings being managed upwards using discretionary accruals to reduce the forecast error (Jaggi, Chin, Lin and Lee 2006). The new policy on financial forecasts is more flexible than the old one, with listed companies voluntarily publishing financial fr at i t fr o ehr "u m r f ac loeat o "o p t f ac l oe s n h om f i e a sm a i ni fr s r cm le i ni c s e t y n a c " e n a fr at oe s . c " The Taiwan Securities and Futures Exchange Commission (TSFEC) issued " u enso Dsl ue f i ni F r atb P b c o pn s in 1991. These G i l e fr i o r o Fn c l oe s y ul C m ai " di cs a a c s i e guidelines required Taiwanese firms to include earnings forecasts in their prospectuses for years in which they raise additional capital. The firms are also required to disclose the earnings forecast for two years after the security issuance. The main motivation for this was to reduce the information asymmetry between investors and firms. The recent wave of corporate finance scandals and accounting restatements has increased the demand for transparency in financial markets. These events have inspired finance and accounting research to focus on the quality and transparency of financial reports. The low level of information transparency and disclosure quality of public companies has been under criticism in the many Asian markets including Taiwan. To improve financial forecast quality, Taiwan changed its earnings forecast policy from mandatory to voluntary disclosure in 2005.1 According to " Regulations Governing the Publication of Financial Forecasts of Public Companies" Taiwan, a public company in shall plan and prepare its financial forecast in accordance with the following provisions: 1. Establish a comprehensive written budget system stating monthly cash, production, sales, cost, and capital budgets for reference in preparing the financial forecast. 2. Form reasonable and appropriate assumptions in good faith, and exercise professional due diligence in appropriately disclosing relevant information. 3. Circumspectly and reasonably plan the cash and capital budget, addressing such matters as capital increase by issuing shares, issuing corporate bonds, long-term

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