Management Earnings Forecast and Technical Innovation: The Mediating Effects of Cost of Debt

Muhammad Bilal Khan, Ernest Ezeani, Hummera Saleem, Muhammad Usman

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Abstract

Purpose
This study examines whether a firm's management earnings forecasts affect its technical innovation activities. Our study also examines whether the cost of debt plays a mediating role between the management earnings forecasts and the innovation nexus.

Design/methodology/approach
We obtained data from 1032 Chinese non financial firms listed on the Shanghai and Shenzhen stock markets from 2005 to 2022 (i.e., 18576 firm-year observations). We used various econometrics techniques, such as Heckman's (1979) two-stage selection method and two stage least square, to examine the relationship between management earnings forecasts and the firm's technical innovation activities.

Findings
We find a positive relationship between management earnings forecasts and the firms' technical innovation. We also find that the cost of debt mediates the relationship between management earnings forecast and technical innovation. Further analysis indicates that frequent earnings forecasts provide incremental information regarding a firm's future value and cash flows, thus reducing the volatility and uncertainty in cash flow calculations. Our findings are robust to several tests.

Research Implications
Our study has implications for policymakers, practitioners, and high level management of Chinese firms, enabling them to understand the relationship between management earnings forecasts and firms' innovation activities.
Original languageEnglish
JournalJournal of Accounting in Emerging Economies
Early online date7 May 2024
DOIs
Publication statusE-pub ahead of print - 7 May 2024

Keywords

  • Cost of debt
  • Firm’s technical innovation activities
  • Information asymmetry implications for policymakers
  • Management earnings forecasts
  • Mediation effect
  • and high-level management of Chinese firms
  • practitioners

ASJC Scopus subject areas

  • Development
  • Accounting
  • Sociology and Political Science

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