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1. Introduction
We extend the previous literature on forward-looking information (FLI) disclosure by investigating the effect of CEOs’ characteristics on narrative FLI disclosure. Voluntary disclosure, such as FLI, is considered essential in demonstrating a company’s position to shareholders, and other stakeholders in the wider sense of the term (Jensen and Meckling, 1976; Lim et al., 2007; Hassanein and Hussainey, 2015). In fact, a number of studies argue that the most significant items in voluntary disclosure are FLI (Francis, Huang, Rajgopal, and Zang, 2008; Wang and Hussainey, 2013). We focused on forward-looking narrative because existing evidence suggests that managers who are willing to manipulate the tone of corporate disclosure are likely to target forward-looking statements for such purposes (Schleicher et al., 2007; Schleicher and Walker, 2010). Thus, our study differs from previous studies on FLI disclosure in that we focus exclusively on how the personal characteristics of CEOs affect the voluntary narrative FLI. Previous studies suggest that corporate reporting practices vary predictably, in accordance with the particular individual characteristics of directors (Schrand and Zechman, 2012; Davidson et al., 2013), and that these characteristics have an effect on managers’ decisions, including their influence on voluntary disclosure strategies (Bamber et al., 2010), accruals quality (Francis, Huang, Rajgopal, and Zang, 2008) and accounting policies (Arun et al., 2015).
Disclosure regarding a company’s future performance is mostly made on a voluntary basis, subject to managerial discretion (Clarkson et al., 2008). Although previous studies found that FLI disclosure enhances investors’ ability to predict future earnings (Hussainey et al., 2003; Hussainey and Walker, 2009; Athanasakou and Hussainey, 2014), academic research has shown that no study has used the level of FLI disclosure to investigate the relationship between CEO characteristics and voluntary disclosure. This limitation provides the motivation for the present study, by providing evidence on the nature of the relationship between FLI disclosure and CEO characteristics in the context of Jordan. Furthermore, we were motivated by the unique role the CEOs can play in FLI statements, particularly through narrative disclosures.
We define FLI disclosure more widely and include all types of FLI disclosure, including management strategy, valuations of opportunities and risks, forecast data, qualitative and non-forecast data. This sort of approach is useful for the...