Do Earnings Forecast Errors Affect Firm Value and
Insider's Profit Evidence from the Taiwan Stock Market
Wei-Shuo Chang Department of International Business, Kao Yuan University Ph.D. Candidate, Department of Finance, National Sun Yat-sen University E-mail address: wschang1.tw@yahoo.com.tw
Abstract
In order to improve financial forecast quality, Taiwan 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. The inferences of voluntary earnings forecast are examined based on forecasts issued by Taiwanese listed firms. This study suspects that insiders have a temptation to strategically manipulate financial forecast information to influence markets and thus receive extra rents. Under the new earnings forecast disclosure policy, the disclosures are not mandated by legislation and the number of disclosing firms decreases. The empirical result evidences the forecast error of voluntary disclosure may negatively impact firm values. Furthermore, there is a positive relationship between insiders't d gprofit and manipulation of earnings ri an forecasts. As volatility in insider manipulation increases, it is difficult for the investors to predict the real intention of insiders, and insiders may achieve greater benefits from trading. This study also observes that many listed companies hold investor conferences to provide earnings guidance in Taiwan. The reason may be that investor conference is more flexible and has less forecast error cost than the formal financial forecast.
Keywords: earnings forecast, earnings management, information asymmetry, information manipulation, voluntary disclosure.
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1. Introduction

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