Disclosures in Profit Forecasts: Evidence from UK Takeover Bids

This paper analyses the content of 250 profit forecasts disclosed during 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992. Two variables measure disclosure; one based on the number of items disclosed and one based on the number of assumptions disclosed in the forecasts. Hypotheses are tested to assess whether there is a significant association between disclosure and three levels of independent variables: Takeover-context variables (forecaster/party to the bid; type of bid; value of bid); forecast-related variables (circumstances of making the forecast; forecast horizon; period of the forecast) and firm-specific variables (size; leverage; management ownership; substantial shareholdings, financial advisors; auditors / reporting accountants; listing status; industry; nationality).  Negative binomial regression was used in estimating a model explaining disclosures in forecasts . For both number of items disclosed and number of assumptions disclosed, and in all regression models, type of bid, circumstances of making the forecast and the period of the forecast were significant. Disclosures in forecasts were significantly greater during contested bids, in voluntary forecasts and in longer period forecasts. Significantly more assumptions were disclosed by target forecasters and in longer horizon forecasts. Significantly more items were disclosed where the percentage management ownership was lower. Thus, the takeover-context variables and forecast-related variables appeared to be most relevant in determining disclosures in forecasts. Firm-specific variables had less explanatory power in the models.