Cultural Dimensions Affecting Accounting Measurement and Disclosure Practices

Abstract

This research investigates the intricate relationship between the accuracy of
management earnings forecasts and their subsequent effects on market credibility,
proposing a novel methodological framework that diverges from traditional econometric models. While prior literature has established a correlation between forecast
accuracy and market reactions, this study introduces a multi-dimensional credibility
construct, measured not merely by immediate stock price movements but through
a composite index incorporating analyst forecast dispersion, bid-ask spread dynamics, and long-term institutional holding patterns. We formulate an unconventional
problem by examining how forecast errors of varying magnitude and direction (optimistic versus pessimistic) asymmetrically erode or build different facets of credibility over discrete time horizons. Our methodology employs a hybrid technique
combining elements of computational linguistics for analyzing the qualitative justifications accompanying forecasts with agent-based market simulation to model
the propagation of credibility effects in a heterogeneous investor environment. The
results reveal a non-linear, threshold-based relationship where minor forecast inaccuracies can, paradoxically, enhance credibility by signaling managerial prudence,
while high accuracy consistently fosters trust in operational transparency. A key
unique finding is the identification of a ’credibility capital’ reservoir that management can draw upon, which depletes and replenishes at different rates based
on forecast error patterns. This research contributes original insights by redefining market credibility as a dynamic, multi-attribute asset and provides a novel
simulation-based toolkit for assessing the long-term reputational consequences of
voluntary disclosure strategies, offering significant implications for corporate communication policy and securities regulation.