Institutional Differences of Information Content On Voluntary Earnings Releases In The U.S. and Canada

Historically, Canadian laws have created a less litigious environment thanthose of the U.S. This changed in 1998 with the passage of the Securities LitigationUniform Standards Act (SLUSA), and in 2000 with the passage of Regulation FullDisclosure (Regulation FD). The intent of these acts were to not only encouragemore U.S. firms to release voluntary earnings forecasts, but to offer protection forsuch disclosures against lawsuits, similar to laws in Canada. In addition, with theadvent of International Financial Accounting Standards (IFRS), voluntary earningsreleases play a bigger role, in increased frequency and revision of forecasts. SinceCanada requires the use of IFRS in financial reporting, it serves as a good base ofcomparison of what may be to come in the U.S. These types of differences comprisewhat can be characterized as institutional differences.This study finds that Canadian managers tend to issue voluntary earningsforecasts more frequently across the board than their U.S. counterpart, even afterthe interdiction of SLUSA and Regulation FD in the U.S. In addition, the Canadianforecasts tend to be more precise than those offered by U.S. managers. On the surface,it appears that the SLUSA and Regulation FD have not completely achievedtheir goal of creating greater and more informative voluntary earnings disclosuresin the U.S., but in addition, IFRS adoption in Canada may have also led to the increasedfrequency and accuracy of earnings forecasts.