Forward Looking Disclosures Financialverifiability and Analysts Forecastsa Study of Cross Listed

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Forward-Looking Disclosures,
Financial Verifiability and
Analysts' Forecasts: A Study of
Cross-Listed European Firms
a b
Saverio Bozzolan , Marco Trombetta & Sergio
c
Beretta
a
Department of Economics and Management ,
University of Padova , Italy
b
Instituto de Empresa Business School , Madrid, Spain
c
Department of Accounting , Bocconi University ,
Milan, Italy
Published online: 04 Aug 2009.
To cite this article: Saverio Bozzolan , Marco Trombetta & Sergio Beretta (2009)
Forward-Looking Disclosures, Financial Verifiability and Analysts' Forecasts: A Study
of Cross-Listed European Firms, European Accounting Review, 18:3, 435-473, DOI:
10.1080/09638180802627779
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European Accounting Review
Vol. 18, No. 3, 435 –473, 2009
Forward-Looking Disclosures,
Financial Verifiability and Analysts’
Forecasts: A Study of Cross-Listed
European Firms
SAVERIO BOZZOLAN , MARCO TROMBETTA and

SERGIO BERETTA†

Department of Economics and Management, University of Padova, Italy, Instituto de
Empresa Business School, Madrid, Spain and †Department of Accounting, Bocconi University,
Milan, Italy
ABSTRACT Forward-looking disclosures are a crucial source of information when

valuing a company. We study the effect of forward-looking disclosures on analysts’
forecast properties, in particular accuracy and dispersion. Our sample includes all the
non-financial firms from Italy, Germany, France and Switzerland that in year 2002
were cross-listed on local stock exchanges and on the New York Stock Exchange.
We conduct a content analysis on the Annual Report and the 20F form of these
companies for the years 2002, 2003 and 2004. We differentiate between forward-
looking information on the basis of the disclosure of expected effects on future
financial performance and the disclosure of a measure of this impact. We define
forward-looking information disclosed with the characteristics of being quantified and
directed (and financial) as financially verifiable as it facilitates the comparison with
its subsequent realisation in relation to expected future financial performance. Our
analysis finds support for the theoretical prediction that verifiable disclosures are more
effective than unverifiable disclosures at improving accuracy and reducing dispersion
of analysts’ forecasts. Our sample also allows us to explore the effects of the
difference between the degrees of verifiability between forward-looking disclosures of
the 20F form versus those of the domestic annual report. Our analysis provides
empirical support for the hypotheses that these differences are significant and have a
significant effect on forecast properties.
Correspondence Address: Saverio Bozzolan, Department of Economics and Management, University

of Padova, Via del Santo 33, 35123 Padova, Italy. Email: saverio.bozzolan@unipd.it
0963-8180 Print/1468-4497 Online/09/030435–39 # 2009 European Accounting Association

DOI: 10.1080/09638180802627779
Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA.
436 S. Bozzolan et al.
1. Introduction
Recently, many official pronouncements have stressed the importance of
forward-looking information for end users of corporate financial information.
It is believed that the additional information contained in the Management
Discussion and Analysis (MD&A) section of the annual report improves the
capability of investors to assess future cash flows and to forecast future earnings
(Barron et al., 1999). For example, the Jenkins Committee (AICPA, 1994), the
Canadian Institute of Chartered Accountants (CICA, 2002) and the Institute of
Chartered Accountants of England and Wales (ICAEW, 2003), all recommend
that corporate financial reporting should provide more information with a
forward-looking perspective, in order to meet users’ needs. It should specifically

focus on the factors that create long-term value.
In our study we empirically test what is the effect of forward-looking disclos-
ures and of their financial verifiability on the properties of analysts’ forecasts:
accuracy and dispersion.
Our study differs from prior studies on disclosure and properties of analysts’
forecasts for two reasons.
First, we use measures of forward-looking disclosures based on a content
analysis of two original documents: the domestic Annual Report and the 20F
reconciliation form. In particular, we have content analysed the Operating and
Financial Review, all the non-financial statements sections in the Annual
Report and Part I in the 20F. We classify forward-looking information into
two categories: financially verifiable versus unverifiable according to whether
it offers (or not) the expected impact on future (finance) performance and a
measure of this impact. Previous studies (e.g. Lang and Lundholm, 1996;
Barron et al., 1999; Hope, 2003a) adopt, as a measure of disclosure, indexes cal-
culated by external institutions and do not explore the issue of the verifiability of
disclosure.
Second, we use a sample of companies from four European countries (Italy,
Germany, France and Switzerland) that are also cross-listed in the USA. The
four European countries are chosen because of their low ranking status in
terms of their disclosure requirements as compared to the USA. Lang and Lund-
holm (1996) and Barron et al. (1999) focus only on US companies. Hope (2003a)
uses an international sample, but focuses only on accounting policy disclosures
and does not investigate the disclosure difference that may exist between the
US and domestic documents. Vanstraelen et al. (2003) study an international
sample and perform a content analysis of original documents. However, only
some of the companies included in their sample are cross-listed and hence they
cannot systematically compare US and domestic disclosures.
Our contribution to the existing literature on analysts’ forecast earnings prop-
erties is twofold.
First, we provide empirical support for the theoretical prediction that verifiable
disclosure is more value relevant than unverifiable disclosure. Disclosures that
A Study of Cross-Listed European Firms 437
indicate the expected impact on company performance and that provide a

measure of such an impact are more effective at improving the accuracy of
forecasts.
Second, the use of a sample of European firms cross-listed on the New York
Stock Exchange (NYSE) allows us to investigate the consequences of differences
in the content and in the degree of verifiability of the 20F compared to the Annual
Report. In general the 20F contains more forward-looking information than the
Annual Report. We show that if these additional disclosures are financially
verifiable, then they generate an additional positive effect on accuracy.
However, if these additional disclosures are not financially verifiable, then they
increase the dispersion of forecasts.

The remainder of the paper is organised as follows. In the next section we
review the relevant literature and develop our hypotheses. In the third section,
we describe our sample and data. In Section 4 we present our empirical results
and findings. Section 5 concludes the study.
2. Literature Review and Hypothesis Development

We want to test whether forward-looking disclosures are useful to financial ana-
lysts in forecasting earnings. Few previous studies have dealt with this issue.
Bryan (1997), using a sample of 250 US firm observations, shows that when
the information contained in the MD&A is used as supporting the interpretation
of the financial statements, the prospective disclosures can assist in assessing
short-term prospects. Clarkson et al. (1999), using a sample of firms listed on
the Toronto Stock Exchange, find evidence of the usefulness of the content
of the MD&A for financial analysts, thus confirming the relevance of MD&A in
the firm’s overall disclosure. Using a sample of UK companies, Schleicher and
Walker (1999) demonstrate that the disclosure of forward-looking information
is associated with a more accurate level of share-price anticipation. In relation
to UK listed firms, Hussainey et al. (2003) show that forward-looking infor-
mation in the annual report enables the market to better predict a firm’s future
earnings.
In particular, our analysis focuses on the relationship between the disclosure of
forward-looking information and the accuracy and the dispersion of analysts’
forecasts.
Focusing on US listed companies, Lang and Lundholm (1996) examine the
association between properties of analysts’ earnings forecasts and firm disclosure
practices. They find that the Financial Analysts Federation ratings of a firm’s dis-
closure (used as a proxy of disclosure quality) is negatively related to forecast
dispersion and not related to forecast accuracy. Using an international sample,
Hope (2003b) studies the properties of analysts’ forecasts in relation to disclosure
practices and enforcement of accounting standards in different countries. He
shows that annual report disclosures provide useful information to financial ana-
lysts and that strong enforcement is associated with better forecast accuracy.
Barron et al. (1999) demonstrate that information contained in MD&A has

substantial effects on earnings forecasts as a superior quality of disclosure is
associated with less error and less dispersion in analysts’ earnings forecasts.
This association is driven by historical information on capital expenditure and
disclosure of forward-looking information on capital expenditure and operations.
Vanstraelen et al. (2003) study the relation between the extent of non-financial
disclosures in annual reports and the properties of analysts’ earnings forecasts
on a sample of European companies listed in Germany, Belgium and the
Netherlands. They document that forward-looking non-financial disclosure is
associated with lower dispersion and higher accuracy of earnings forecasts.
Previous empirical studies mainly agree in detecting a positive relationship

between disclosure and forecast accuracy, whereas the evidence with respect
to disclosure and forecast dispersion is more controversial.
Baginski et al. (2004) argue that information used by financial analysts to fore-
cast earnings is mainly focused on companies’ internal strategies and on the evol-
ution of the external competitive and regulatory environment. Disclosures about
these topics can be of a very diverse nature. In particular, they can be character-
ised by a different degree of verifiability. In our study we want to test whether the
effects of the disclosure of forward-looking information on analysts’ forecasts is
related to some attributes of forward-looking information. In particular we focus
on the financial verifiability of the expected impact of the disclosures.
Inspired by Hutton et al. (2003), we choose to define forward-looking infor-
mation as verifiable on the basis of its effects on financial performance. We con-
sider as verifiable all information that is disclosed using any metric (either
financial or non-financial) that facilitates the comparison with its subsequent
realisation in relation to expected future financial performance. On this basis,
we distinguish verifiable from non-verifiable disclosure.
The beneficial effects of disclosure as a means to avoid adverse selection are
firmly established in theoretical literature (see Dye, 2001; Verrecchia, 2001 for
a survey of this literature). However, not all kinds of disclosures produce the
same benefits: it is crucial to take verifiable disclosure apart from non-verifiable
(cheap talk) disclosure. The classical ‘unravelling result’ (Milgrom, 1981)
demonstrates that it is the exogenous or endogenous credibility of the information
disclosed that allows different types of firms to separate and avoid the uninforma-
tive pooling equilibrium. Crawford and Sobel (1982) have shown that unverifi-
able disclosures are not informative in the sense that the equilibrium is always
characterised by untruthful messages. The only exception arises when the
sender and the receiver perfectly agree on what use to make of the information
disclosed.
Previous empirical literature has analysed the effects on both financial ana-
lysts’ activity and share price of verifiable versus non-verifiable disclosures as
additional information provided together with management earnings forecasts
(for example, Waymire, 1984; Miller, 2002). Hutton et al. (2003) and Baginski
et al. (2004) both find that only verifiable disclosure is informative in this
context. On the basis of both the theoretical arguments and of the previous
empirical evidence we state our first directional hypothesis.
H1: Forecast accuracy is positively related to the percentage of financially

verifiable forward-looking information.
Harris and Raviv (1993) developed a model of trading in speculative markets where
different traders hold different opinions about the same information. As a conse-
quence, when new information is released in the market the trading volume may
increase because of differences among traders’ interpretation of this additional
information. Kim and Verrecchia (1994) extend this idea by assuming that some
traders can make judgements about a firm’s performance that are superior to
those of other traders. Hence, when new information reaches the market, the
level of information asymmetry may increase and consequently liquidity may
decrease. Kandel and Pearson (1995) develop a model similar to the model
proposed by Harris and Raviv (1993) and provide empirical evidence in favour
of the differential interpretation hypothesis. Barron et al. (2002) show that the
commonality of information among active analysts decreases around earnings
announcements, providing empirical support to the Kim and Verrecchia (1994)
model. However, financially verifiable forward-looking information in the
Annual Report and/or in the 20F evens out the informational field of market partici-
pants. Thus, we conjecture that the variability of earnings forecasts varies inversely
with respect to the characteristics of the forward-looking information that make it
financially verifiable. When a company discloses information that can be inter-
preted by financial analysts in a common way, that is, quantifiable and directed,
we expect earnings forecasts to be more similar and more accurate. On the basis
of the previous arguments, we state the following directional hypothesis.
H2: Forecast dispersion is negatively related to the percentage of financially

verifiable forward-looking information.
As an extension of our main analysis, we exploit the special features of our

sample which is made of European firms from Italy, France, Switzerland and
Germany that cross-list on the NYSE. These countries are chosen since signifi-
cant differences exist among them and the USA both in the ranking on the
level of accounting disclosure requirements (Young and Guenther, 2003) and
in the strength of the enforcement of accounting standards (Hope, 2003b) as
well. In particular, the USA is constantly classified among the most demanding
reporting environments, whereas the four countries represented in our sample
are always ranked among the relatively less demanding reporting environments.
This research design allows us to compare forward-looking information
contained in the domestic Annual Report versus that contained in the 20F.
Consequently, we are able to study the possible effects of the differential contents
of the Annual Report and of the 20F on the quality of analysts’ forecasts.
Bradshaw et al. (2002) provide evidence that there exist information asymmetries
between investors located in different countries. During the period covered
by our sample, foreign companies were forced by the SEC to produce the 20F
over and above the domestic Annual Report in order to reduce information
asymmetries. As clearly explained by Beattie et al. (2008), there exist differ-
ences in the regulation of narrative disclosures between the USA and Europe.
The SEC requires foreign listed companies to supply forward-looking infor-
mation in the 20F, but it does not specify either the content or the extent of
these disclosures. Moreover, nothing is said about the need to use measures
and/or other indicators. Hence, most of the disclosure of forward-looking infor-
mation in the 20F can be considered voluntary. This is important in our differ-
ential analysis because no difference between forward-looking disclosure in
the 20F and in the domestic Annual Report can be explained simply as a conse-
quence of legal requirements. Moreover, Beattie et al. (2008) find that, even for a
sample of UK non-cross-listed companies, the level of disclosure is about 40%
of the level of disclosure for a matched sample of US firms. This means that the
greater disclosure level registered in the US document cannot simply be due to
the cross-listing.
The beneficial effects of cross-listing in the USA have been shown, among
others, by Lang et al. (2003a, 2003b). However, the reason why cross-listing
has such beneficial effects is still not clear. Hope (2003b) shows that a stricter
enforcement of accounting standards, associated with cross-listing in the USA,
has the effect of reducing analysts’ uncertainty on future results, thereby increas-
ing forecast accuracy. In the literature this is usually referred to as the ‘legal
bonding’ hypothesis. However, Siegel (2005) challenges the legal bonding
hypothesis with his analysis of Mexican companies cross-listed in the USA.
He shows that the US authorities very rarely pursue foreign companies outside
the US border, even when there is clear evidence of illegal appropriation of
assets. We propose an alternative reason for the benefits of cross-listing:
additional financially verifiable forward-looking disclosure. This additional dis-
closure can improve the information environment for cross-listed companies
and consequently improve the properties of analysts’ forecasts. Previous studies
(Rees and Elgers, 1997; Pownall and Schipper, 1999) have already shown that
the 20F form includes value-relevant information. However, as pointed out by
Leuz (2006), it is not clear whether this document includes any new information
or that users actually use this additional information. We compare directly the
content of one document versus the other on the basis of the same classification
procedure. This allows us to define the differential content of the 20F with
respect to the Annual Report. Hence we are able to test the following two
additional and directional hypotheses:
H3: Forecast accuracy is positively associated with the additional financially

verifiable forward-looking information provided in the 20F compared to the dom-
estic Annual Report.
H4: Forecast dispersion is negatively associated with the additional financially

verifiable forward-looking information provided in the 20F compared to the
domestic Annual Report.
3. Sample and Variables

3.1. Sample
Our sample includes all the non-financial firms from Italy, Germany, France and
Switzerland that were listed in year 2002 both on their local stock exchange and
on the NYSE and for which we have I/B/E/S data on analysts’ forecasts. Our
sample, which corresponds to the entire population of non-financial cross-
listed companies for these countries, is composed of 45 companies: 9 from
Italy, 9 from Switzerland, 13 from Germany, 14 from France. For all these
firms, the English version of the domestic Annual Report and the 20F are used
as the original sources for the analysis of forward-looking disclosures. We
follow these companies for three years (2002, 2003, 2004) analysing both the
Annual Report and the 20F (Table 1). We have 45 firm observations for 2002
and 2003 and 43 firm observations for 2004 because during 2004 Air France
merged with KLM and the Italian DeRigo delisted from the NYSE.
Consequently we end up with 266 firm/document observations (133
Annual Reports and 133 20Fs), two per firm in each year analysed. This research
design allows us to use each firm in the sample as its own control since
by comparing two documents for the same company, we are sure that the
source of the differences in disclosure cannot be due to some firm-specific
omitted variable. In fact we have content analysed the Operating and Financial
Review and all the non-financial statement sections in the Annual Report and
Part I in the 20F.
3.2. Dependent Variables

All analysts’ data are taken from the I/B/E/S database that fully covers our
sample of companies. We use two dependent variables:
. forecast accuracy defined as, among others, in Lang and Lundholm (1996),
Barron et al. (1999) and Hope (2003a):

EPSt EPSt
Forecast Accuracy ¼
PPSt
EPSt ¼ median of one year ahead analysts0 forecasts of EPS for period t
EPSt ¼ earnings per share in period t
PPSt ¼ price per share at the beginning of period t
. forecast dispersion defined as, among others, in Lang and Lundholm (1996)
and Barron et al. (1999):
Table 1. The sample: non-financial cross-listed companies

Name Country Notes
Air France F Merged with KLM 2002/2004

Alcatel F
Danone F Delisted from NYSE in 2007
France Telecom F
Lafarge F
Publicis F
Rhodia F
Sodexo F
Suez F
Technip F
Thomson F
Total F
Veolia F
Vivendi F Delisted from NYSE in 2006
Altana G Delisted from NYSE in 2007
BASF G
Bayer G
Daimler G
Deutsche Telecom G
Epcos G
Fresenius G
Infineon G
Pfeiffer G
SAP G
Schering G Acquired by Bayer in 2007
SGL G Delisted from NYSE in 2007
Siemens G
Benetton I
DeRigo I Delisted from NYSE in 2004
Ducati I Delisted from NYSE in 2007
Enel I
Eni I
Fiat I
Luxottica I
Natuzzi I
Telecom Italia I
ABB SW
Adecco SW
Alcon SW
Ciba SW Delisted from NYSE in 2007
Novartis SW
Serono SW Acquired by Merck 2006 – delisted
from NYSE in 2007
STM SW
Swisscom SW
Syngenta SW
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
1 X d t )2
(EPStj EPS
J j
Forecast Dispersion ¼
PPSt
0
EPStj ¼ analyst j s one year ahead earnings per share forecast for period t
d t ¼ mean of the earnings per share in period t
EPS
PPSt ¼ price per share at the beginning of period t
J ¼ number of analysts following the firm.
Following Lang and Lundholm (1996), both dependent variables are deflated by
the stock price at the beginning of the period to facilitate the comparison among
firms. Forecast accuracy assumes only negative values and values closer to zero
indicate less error in the mean forecasts.
3.2.1. Independent variables

(a) Disclosure measures
In the context of studies of disclosure and analysts’ forecast properties, Lang and
Lundholm (1996), Barron et al. (1999) and Hope (2003a) all take their disclosure
measures from existing databases (AIMR, CIFAR and SEC). Similar databases
on forward-looking disclosure for European cross-listed firms are not available.
The only comparable analysis of forward-looking disclosure (according to this
point) is in Vanstraelen et al. (2003) where they construct their measure of
non-financial disclosure by looking directly at the content of the original narra-
tive documents. However, while they stress the distinction between forward-
looking and historical information, we focus on forward-looking information
and stress the distinction between non-verifiable and verifiable information.
We construct our own measure of forward-looking information based on the
direct analysis of the 20F and of the Annual Reports. In particular we content
analyse Part I of the 20F1 and all non-financial statement sections of the
Annual Report. This methodology is in line with a strand of recent literature
that emphasises the need to study directly the content of narrative disclosure
(Beattie et al., 2004). The adoption of proper content analysis tools in order to
study disclosure has the potential to allow the researcher to capture more dimen-
sions of the disclosure phenomenon. We believe that the forward-looking orien-
tation is one of these dimensions. According to the ICAEW (2003), we define as
forward-looking any information that might have an effect on subsequent finan-
cial statements. Hence, we include in the analysis sentences referring to facts that
have taken place after the closing of the accounts.
The coding procedure is organised in the following three phases. In the first
phase we establish the sentence (defined as a set of words that is complete in
itself, typically containing a subject and predicate, conveying a statement, and con-
sisting of a main clause and sometimes one or more subordinate clauses) as record-
ing unit as it is generally considered more reliable than pages or paragraphs
(Hackston and Milne, 1996). The second phase consists in the definition both of the
framework and of the coding procedure to capture the disclosure of forward-
looking information. We use a framework that considers different dimensions:
the content and the characteristics of information disclosed. Without a clear
body of academic literature concerning the content of forward-looking disclosure,
we built the framework using the guidance on voluntary risk reporting issued by
professional bodies (AICPA, 1994; CICA, 2001; FASB, 2001; ICAEW, 2000),
the results of previous empirical works (Robb et al., 2001; Beretta and Bozzolan,
2004), and the guidelines for risk assessment and analysis proposed by practitioners
(Bell et al., 1997; DeLoach, 2000). This framework organises forward-looking
information in three categories: strategy (goals for performance, mission, broad

objectives and a way to achieve objectives); company structure and operations
(financial structure, changes in ownership, mergers and acquisitions, information
concerning the way operations are managed, technological structure such as core
and support technologies, organisation such as organisational structure and
human resources management); and finally environment around the company
(legal and regulatory, political, economic, financial, social, natural and industry).
Each sentence containing forward-looking information is then analysed
according to its characteristics: the economic sign that communicates the direc-
tion of the expected impact upon the future performance of the firm and the
measures used in order to quantify/qualify the expected impact.
In the third phase, each sentence is coded in order to identify the content and
the characteristics of disclosure. Each sentence is coded as 1 if it contains a
forward-looking disclosure concerning one of the contents explicitly considered
by the disclosure framework: strategy, corporate structure and operations and
environment (Beretta and Bozzolan, 2004); otherwise it is coded as 0. If a sen-
tence contains forward-looking information, its characteristics are therefore ana-
lysed. A score of 1 is attributed if the direction of the expected impact is disclosed
and an additional score of 1 is attributed if a measure of the expected impact is
also disclosed. Eventually each sentence is associated with a vector that can
take five different values:
. (0, 0, 0) if the sentence does not contain forward-looking information;

. (1, 0, 0) if the sentence contains forward-looking information but does not offer
indication of the expected impact and does not disclose a measure;
. (1, 1, 0) if the sentence contains forward-looking information and offers
indication on the expected impact but does not disclose a measure;
. (1, 0, 1) if the sentence contains forward-looking information and discloses a
measure but does not offer indication of the expected impact on future
performance;
. (1, 1, 1) if the sentence contains forward-looking information, its expected
impact of future performance disclosing also a measure.
Some examples are presented in Table 2.

Table 2. Some examples of the coding procedure
Company Source Content Coding
CIBA 20F 2004: p. 12 In aiming for best-in-class manufacturing, the company seeks lowest cost (1-str, 0, 0)
manufacturing coupled with focused capital expenditures, while maintaining an
overriding policy of ‘safety first’
ADECCO AR 2004: p. 11 At Adecco Staffing, we will further expand our branch network and extend our service (1-str, 0, 0)
offering, with a special focus on retail client base growth and on markets that have
recently benefited from more favourable regulation
Margins in this division will be supported by increased specialisation in high demand (1-str, 1, 0)
segments, pricing discipline and improvements in business mix
SERONO AR 2002: p. 13 To complement our internal R&D programmes, we have formed alliances with other (1-corstr, 0, 0)
leading biotech and pharmaceutical companies, acquiring promising new therapies
SWISSCOM 20F 2004: p. 70 For the future, Swisscom expects that growing competition, in particular from cable (1-env, 1, 0)

operators, as well as regulatory risks such as unbundling of the local loop and a
reduction in interconnection tariffs will further increase pressure on margins in the
traditional fixed-line business
ENI 20F 2003: p. 18 Natural gas produced from both fields is planned to be transmitted to Italy through an (1-corstr, 0, 0)
underwater pipeline linking Meliath on the Libyan cost to Gela in Sicily
The laying of the pipeline started in the second half of 2003 (0, 0, 0). Management (1-corstr, 0, 0)
expects transport of natural gas volumes to start in late 2004, in line with the start of
production at Wafa
Natural gas volumes are projected to reach 8 billion cubic metres per year (4 billion (1-corstr, 0, 1)
being Eni’s share)
Such volumes have already been booked by operators in the natural sector under long- (1-corstr, 0, 0)
term supply contracts
ENI 20F 2003: p. 19 Eni’s share of the planned capital expenditure for the whole project amounts to E3.7 (1-corstr, 0, 1)
billion; of which E3.1 billion for the upstream phase
In April 2004 Eni signed an agreement with the Portuguese Government for the (1-corstr, 0, 0)
reorganisation of Galp Energia (Eni’s interest 33.34%) within the restructuring
process of the Portuguese Energy Sector
Under the agreement Eni concentrates its activities in the natural gas sector through a (1-str, 0, 0)
(Table continued)
Table 2. Continued
446
Company Source Content Coding
S. Bozzolan et al.
49% interest in Gas de Portugal (indirectly owned through Galp Energia) and exits
the segment of refining and marketing of refined products in Portugal
Gas de Portugal will be managed only with Electricidade de Portugal, the other (1-str, 0, 0)
shareholder with 51% of interest; the natural gas transmission network owned by
Gas de Portugal will be sold to a state-owned Portuguese company
The finalisation of the agreement is subject to authorisation from relevant antitrust (1-env, 0, 0)
authorities
When finalised, this transaction will provide Eni cash proceeds of E667 million (1-corstr, 1, 1)
FRANCE AR 2004: p. 8 More than E15 billion in net cash provided by operating activities less net cash used in (1-corstr, 1, 1)
TELECOM investing activities to be generated by the ‘TOP’ programme (Total Operational
Performance) and will be allocated to debt reduction
These three initiatives were implemented in parallel, with the objective of achieving by (1-corstr, 1, 1)
2005, a ration of net financial debt to operating income before depreciation and
amortisation of less than 2 giving the group greater strategic and financial flexibility
by the end of 2005
SGL CARBON 20F 2004: p. 9 We cannot assure you that we will be able to generate or obtain sufficient funds needed (1-corstr, 1, 0)
for our future operations and our other cash requirements, or that we will meet all
loan covenants and other obligations in connection with our present financing
arrangements
SAP AR 2003: p. 72 Although the market remained difficult in 2003, SAP further extended its position in the (0, 0, 0)
market, particularly in the USA
This is a good starting point for growing its market share in the future and, at the same (1-corstr, 1, 0)
time, increasing its operating margin
SAP AR 2003: p. 73 Although SAP is giving priority to growth in 2004, it wants to continue with stringent (1-str, 1, 0)
cost management measures and further increase profitability
SAP therefore predicts it will increase pro forma operating margin based on operating (1-corstr, 1, 1)
income before stock-based compensation and acquisition-related charges by one
percentage point on the 2003 value of 27%
1-str: forward-looking information related to strategy; 1-corstr: forward-looking information related to corporate structure and operations; 1-env: forward-looking
information related to environment.
As a result, the score for the disclosure offered by each company in its Annual
Report and 20F is the sum of the vectors representing the score for each sentence.
For example, a vector score (145, 38, 15) means that the company discloses
145 pieces of forward-looking information, 38 of them contain the expected
impact on future performance and 15 contain a measure.
An example of the coding procedure for a sample company is provided in
Table 3.
Regarding the measurement of disclosure, we should point out that we use two
different measures of forward-looking disclosures. We define the quantity of
forward-looking disclosure provided by the company both in absolute terms (dis-
closure score) by counting the number of sentences including forward-looking

information contained in the 20F (Ext20F ) and in the Annual Report (ExtAR).
Table 3. An example of the scoring procedure

The second measure is expressed in ‘relative terms’. We have different options

related to what we intend for relative. One classical option is to measure the dis-
closure of forward-looking information in relation to the overall disclosure of
information in the Annual Report or in the 20F. We do not use this measure
because it focuses on and measures the forward-looking orientation of the strat-
egy of disclosure, quantifying the percentage of forward-looking information
over the overall information disclosed in the analysed document. We choose to
focus our attention only on the disclosure of forward-looking information and
we would measure the distance of the disclosure of forward-looking information
of a firm in relation to the maximum amount of forward-looking disclosures
offered by a firm via the same document in the same fiscal year. Our relative
measure of forward-looking disclosure is a disclosure rank (respectively,
Idx20F for the disclosure contained in the 20F and IdxAR for the disclosure con-
tained in the Annual Report), as we consider the number of sentences containing
forward-looking information (in the 20F or in the Annual Report) divided by the
maximum extent of forward-looking disclosures offered by any company (in the
20F or in the Annual Report) each year. In mathematical terms:
Ext20Fit
Idx20Fit ¼
maxj {Ext20F jt }
ExtARit
IdxARit ¼
maxj {ExtAR jt }
for j ¼ 1, 2, . . . , k
where
AR ¼ Annual Report
20F ¼ 20F
t ¼ 2002; 2003; 2004
k ¼ number of companies considered in the analysis.
We calculate the content of the forward-looking information disclosed both in
the Annual Report and in the 20F referring either to corporate structure and oper-
ations (Corstr) or to strategy (Str) or to the company environment (Env) as the
number of forward-looking sentences that contain one of these mutually exclu-
sive features over the total number of forward-looking sentences of any kind.
We refer both to the content of the Annual Report (CorstrAR, StrAR and
EnvAR, respectively) and of 20F (Corstr20F, Str20F and Env20F, respectively).
Looking at the characteristics of the information disclosed, we calculate the
percentage of forward-looking information that (i) provides information about
the expected impact on a firm’s future performance in the Annual Report
(EsAR) and in the 20F (Es20F ) and (ii) provides an explicit quantification of
this impact in the Annual Report (MsAR) and in the 20F (Ms20F ). A sentence
is codified as financially verifiable forward-looking information when it contains
the expected impact on future performance and a measure of this impact. In our
analysis, we define the percentage of financially verifiable forward-looking

information in the 20F as Ver20F and the percentage of financially verifiable
forward-looking information in the Annual Report as VerAR.
In order to study the differences in the disclosure of forward-looking infor-
mation in the Annual Report and in the 20F, we define some disclosure variables
representing these differences both in the extent of the disclosure of and in the
characteristics of forward-looking information. We compute these differences
as the value obtained by subtracting from the variable referring to the 20F the
variable referring to the Annual Report (Diff, DiffEs, DiffMs and DiffVer, respect-
ively, the difference regarding the extent, the percentage of information concern-
ing expected firm performance, the percentage of information containing a

measure and the percentage of verifiable information). We compute the simple
difference (Diff, DiffEs, DiffMs, DiffVer), the truncated difference where we
substitute every negative value with a 0 (Trc_Diff, Trc_DiffEs, Trc_DiffMs,
Trc_DiffVer) and the absolute difference as the absolute value of the difference
(Abs_Diff, Abs_DiffEs, Abs_DiffMs, Abs_DiffVer).
The coding is conducted by two research assistants under the supervision of
one of the authors. First, a preliminary activity has been carried out in order to
identify and codify a set of coding rules between the two coders (inter-coder
reliability). Each research assistant examined three Annual Reports and three
20Fs (of year 2005) in order to standardise the classification capabilities. The
results of this coding activity have been discussed and checked together with
one of the authors. Therefore, misalignments are identified and the final set of
coding rules has been defined. One issue in manual (electronic) coding of
archival documents is reliability.
Krippendorff (1980) identifies three types of reliability: reproducibility, accu-
racy and stability. Stability refers to the level to which a coding process is invar-
iant over time. Reproducibility deals with the assessment of coding errors when
multiple coders are involved. Accuracy compares the results of reliability
obtained with a predefined standard. We address the issue of stability as the
coding has been conducted at two different moments: during 2004 for Annual
Reports and 20Fs of the year 2002 and during the second half of 2007 for
Annual Reports and 20Fs of the years 2003 and 2004.
We deal with reproducibility ex ante by the set of rules and ex post by verifying
the activity of each research assistant, who codes the Annual Reports and
the 20Fs separately, via a sample of recording units re-codified by one of the
authors. This sample corresponds at the 1% (more than 12,000 sentences) of
the total recording units and it is drawn to cover all firms, documents and
years. Because each sentence is coded according to the three dimensions of the
framework reproducibility is tested with reference to content of the forward-
looking disclosure, its economic sign and its measure. We have used the alpha
agreement coefficient proposed by Krippendorff (1980), which compares the
maximum agreement that is reached when all the individuals code the infor-
mation in the same way with the minimum level of agreement that corresponds
to what would be expected by chance. Four alpha agreement coefficients are

computed: for forward-looking information, for the content, for the economic
sign and for the measure. The results have been compared with the level of accep-
tance previously accepted in the literature: 0.75 according to Milne and Adler
(1999). The alpha coefficient agreements are higher than 0.85: only the index
of the content dimension results near the threshold (0.78).
(b) Control variables

We control for earnings predictability, analysts following, size, profitability and
leverage as in previous literature (Lang and Lundholm, 1996; Barron et al., 1999;
Hope, 2003a; Vanstraelen et al., 2003).

Two different variables are used to control for earnings predictability. The first
variable is earnings surprise (EarSur) that is an ex post measure associated with
the ex ante measure represented by forecast accuracy (Barron et al., 1999). The
second variable is country in which the firm is based (Coun) because country-
specific effects may affect the way how analysts incorporate the same piece of
information in their forecasts (Hope, 2003b).
The number of analysts following the firm (Analysts) is used as a proxy for the
competitive pressure in offering precise forecasts and in looking for information
through private channels. EarSur and Analysts considered together act as proxies
for analysts’ environment in relation to a single firm.
The empirical literature on the determinants of disclosure has documented a
significant and positive relationship between firm size and the level of disclosure.
As we directly measure only forward-looking disclosure, size (Size) can be used
as a proxy for other disclosures available to external users (Hope, 2003a). Finally,
we control for such firm-specific variables as profitability (ROE) and leverage
(Lev). Table 4 summarises definitions and data sources of variables used in the
analysis.
4. Empirical Results
4.1. Univariate Analysis
Descriptive statistics of the disclosure variables are reported in Table 5. The
quantity of forward-looking disclosure in 20F is similar for firms located in
three of the four countries analysed: France, Italy and Germany. French,
German and Italian firms, respectively, score on average 357, 386 and 375.
The average score reached by Swiss firms is only 281. A slightly different
pattern emerges for disclosures offered by Annual Reports: French and Italian
firms show a higher quantity of forward-looking disclosures (200 and 192,
respectively) than those located in Germany and Switzerland (165 and 128,
respectively).
Differences in the quantity of forward-looking disclosure among the countries,
both in the 20F and in the Annual Report, are not statistically significant at all
Table 4. Definition of the variables and data sources

Acc forecast accuracy The negative of the absolute value I/B/E/S database
between the median analyst
forecast of earnings per share and
the effective earnings per share
divided by the stock price at the
beginning of period t
Disp forecast The standard deviation of analysts’ I/B/E/S database
dispersion earnings per share forecasts
divided by the stock price at the
beginning of period t
Analysts Number of analysts following the I/B/E/S database

company
ROE Return on equity Compustat
Debt Debt/Net capital Compustat
EarSur Absolute value of earnings change Compustat
divided by the absolute value of
earnings
Size Natural logarithm of sales Compustat
Ext20F Extent of forward-looking disclosure Self-constructed index

in 20F
Idx20F Extent of forward-looking disclosure Self-constructed index
in the 20F divided by the
maximum extent of forward-
looking disclosures offered by a
company in the 20F
Corstr20F % of FLI concerning corporate Self-constructed index
structure and operations in 20F
Str20F % of FLI concerning firm’s strategy Self-constructed index
in 20F
Env20F % of FLI concerning firm’s Self-constructed index
environment in 20F
Es20F % of FLI about the impact on firm’s Self-constructed index
performance in 20F
Ms20F % of FLI containing a measure Self-constructed index
in 20F
Ver20F % of FLI containing a measure of Self-constructed index
the impact on firm’s performance
in 20F
ExtAR Extent of FLI in Annual Report Self-constructed index
IdxAR Extent of forward-looking disclosure Self-constructed index
in the Annual Report divided by
the maximum extent of forward-
looking disclosures offered by a
company in the Annual Report
CorstrAR % of FLI concerning corporate Self-constructed index
structure and operations in
Annual Report
(Table continued)
Table 4. Continued
StrAR % of FLI concerning firm’s strategy Self-constructed index
in Annual Report
EnvAR % of FLI concerning firm’s Self-constructed index
environment in Annual Report
EsAR % of FLI about the impact on firm’s Self-constructed index
performance in Annual Report
MsAR % of FLI containing a measure in Self-constructed index
Annual Report
VerAR % of FLI containing a measure of Self-constructed index
the impact on firm’s performance
in Annual Report
Diff Ext20F 2 ExtAR Self-constructed index

DiffEs Es20F 2 EsAR Self-constructed index
DiffMs Ms20F 2 MsAR Self-constructed index
DiffVer Ver20F 2 VerAR Self-constructed index
TR_Diff Equal to Ext20F 2 ExtAR if . 0 Self-constructed index
otherwise 0
TR_DiffEs Equal to Es20F 2 EsAR if . 0 Self-constructed index
otherwise 0
TR_DiffMs Equal to Ms20F 2 MsAR if . 0 Self-constructed index
otherwise 0
TR_DiffVer Equal to Ver20F 2 VerAR if . 0 Self-constructed index
otherwise 0
AB_Diff Absolute value of Ext20F 2 ExtAR Self-constructed index
AB_DiffEs Absolute value of Es20F 2 EsAR Self-constructed index
AB_DiffMs Absolute value of Ms20F 2 MsAR Self-constructed index
AB_DiffVer Absolute value of Ver20F 2 VerAR Self-constructed index
times. Table 6 shows the results of the ANOVA model using Swiss companies as
a base group. The results show that the extent of forward-looking disclosure in
the 20F is statistically higher only for Italian companies and marginally higher
for German companies. Regarding the quantity of forward-looking disclosure,
Swiss and French companies behave in a similar way. Evidence on the quantity
of forward-looking disclosure in the Annual Report shows that German and
Swiss companies disclose the same amount of information, while the difference
for Italian companies and French companies is statistically significant at 1% and
at 10%.
The ANOVA analysis highlights important differences between the 20F and
the Annual Report. While size is the common element in explaining the extent
of forward-looking disclosure, ROE and Debt are significant for the 20F but
not for the Annual Report. One explanation of the difference can be found by
looking at the role of the Analysts variable. This factor is significant for the
Annual Report but not significant for the 20F. At the domestic level, more
forward-looking information is disclosed only when the analysts’ attention
requires it. On the contrary in the US market, where the level of scrutiny is
Table 5. Descriptive statistics of disclosure variables by country of origin

Percentiles
Variable Obs Mean Std. dev. Min 25% 50% 75% Max
Switzerland
Ext20F 27 280.70 108.93 106 200 253 391 455
Idx20F 27 0.259 0.100 0.097 0.184 0.233 0.361 0.420
Corstr20F 27 0.561 0.097 0.404 0.453 0.586 0.621 0.746
Str20F 27 0.266 0.072 0.148 0.213 0.263 0.313 0.408
Env20F 27 0.172 0.054 0.093 0.126 0.159 0.200 0.290
Es20F 27 0.260 0.145 0.001 0.172 0.235 0.375 0.532
Ms20F 27 0.639 0.092 0.475 0.580 0.613 0.718 0.817

Ver20F 27 0.107 0.121 0.003 0.005 0.054 0.218 0.374
ExtAR 27 128.25 77.12 24 83 116 151 319
IdxAR 27 0.250 0.150 0.046 0.161 0.226 0.294 0.621
CorstrAR 27 0.417 0.078 0.290 0.358 0.402 0.489 0.538
StrAR 27 0.111 0.054 0.018 0.083 0.096 0.141 0.232
EnvAR 27 0.471 0.113 0.277 0.386 0.475 0.578 0.647
EsAR 27 0.145 0.104 0.000 0.093 0.107 0.194 0.400
MsAR 27 0.562 0.149 0.313 0.438 0.534 0.728 0.759
VerAR 27 0.064 0.056 0.000 0.002 0.067 0.940 0.210
Germany
Ext20F 39 374.67 175.49 170 226 323 543 812
Idx20F 39 0.345 0.162 0.156 0.208 0.298 0.501 0.749
Corstr20F 39 0.557 0.086 0.373 0.506 0.561 0.622 0.768
Str20F 39 0.325 0.097 0.174 0.254 0.305 0.400 0.523
Env20F 39 0.116 0.069 0.186 0.069 0.107 0.164 0.254
Es20F 39 0.216 0.108 0.001 0.112 0.210 0.302 0.421
Ms20F 39 0.683 0.340 0.000 0.531 0.789 0.954 0.995
Ver20F 39 0.063 0.056 0.000 0.004 0.048 0.103 0.176
ExtAR 39 165.17 94.56 65 98 148 184 483
IdxAR 39 0.321 0.184 0.126 0.191 0.288 0.358 0.941
CorstrAR 39 0.468 0.068 0.350 0.420 0.458 0.503 0.647
StrAR 39 0.200 0.081 0.033 0.146 0.192 0.272 0.359
EnvAR 39 0.330 0.092 0.162 0.261 0.336 0.400 0.526
EsAR 39 0.137 0.153 0.000 0.029 0.098 0.157 0.578
MsAR 39 0.676 0.314 0.000 0.510 0.729 0.966 0.993
VerAR 39 0.084 0.113 0.000 0.002 0.074 0.123 0.613
Italy
Ext20F 26 385.88 294.25 111 149 210 638 1,004
Idx20F 26 0.356 0.271 0.102 0.137 0.194 0.589 0.927
Corstr20F 26 0.591 0.108 0.448 0.490 0.573 0.681 0.783
Str20F 26 0.260 0.096 0.064 0.200 0.253 0.321 0.444
Env20F 26 0.148 0.071 0.009 0.099 0.142 0.209 0.290
Es20F 26 0.270 0.212 0.002 0.104 0.251 0.394 0.720
Ms20F 26 0.681 0.153 0.344 0.585 0.735 0.805 0.857
Ver20F 26 0.120 0.139 0.000 0.010 0.079 0.164 0.474
(Table continued)
Table 5. Continued
Percentiles
Variable Obs Mean Std. dev. Min 25% 50% 75% Max
ExtAR 26 192.07 177.17 16 42 60 336 513

IdxAR 26 0.374 0.345 0.031 0.081 0.116 0.654 1,000
CorstrAR 26 0.598 0.087 0.444 0.523 0.622 0.668 0.736
StrAR 26 0.185 0.055 0.119 0.144 0.177 0.205 0.340
EnvAR 26 0.216 0.081 0.052 0.152 0.213 0.269 0.351
EsAR 26 0.125 0.098 0.003 0.074 0.096 0.154 0.330
MsAR 26 0.672 0.137 0.402 0.594 0.716 0.794 0.837

VerAR 26 0.053 0.055 0.000 0.000 0.023 0.103 0.146
France
Ext20F 41 356.92 227.30 117 215 301 394 1,083
Idx20F 41 0.329 0.209 0.108 0.198 0.277 0.363 1.000
Corstr20F 41 0.527 0.071 0.382 0.471 0.529 0.588 0.654
Str20F 41 0.362 0.096 0.234 0.282 0.350 0.461 0.560
Env20F 41 0.110 0.087 0.510 0.045 0.116 0.181 0.322
Es20F 41 0.295 0.161 0.100 0.147 0.276 0.453 0.615
Ms20F 41 0.726 0.106 0.537 0.654 0.717 0.784 0.965
Ver20F 41 0.142 0.115 0.000 0.059 0.103 0.210 0.450
ExtAR 41 199.73 96.98 75 114 195 238 512
IdxAR 41 0.389 0.189 0.146 0.222 0.380 0.463 0.998
CorstrAR 41 0.528 0.080 0.339 0.467 0.537 0.575 0.673
StrAR 41 0.176 0.059 0.062 0.130 0.172 0.225 0.316
EnvAR 41 0.294 0.099 0.102 0.232 0.293 0.356 0.533
EsAR 41 0.119 0.071 0.000 0.070 0.108 0.158 0.304
MsAR 41 0.614 0.166 0.274 0.514 0.598 0.712 0.981
VerAR 41 0.067 0.052 0.000 0.008 0.074 0.098 0.174
Disclosure variables as defined in Table 4.
generally higher, more forward-looking information is provided when the finan-

cial situation of the company needs further explanation.
Table 7 presents statistics on the differential disclosure behaviour in the 20F
and in the Annual Report. Empirical evidence shows that both in the Annual
Report and in 20F, forward-looking disclosures mainly refer to corporate struc-
ture (55.5 and 50.1%, respectively). However, the distribution of the content of
forward-looking information is different between the 20F and the Annual
Report. Disclosures on external environment have a much greater share in the
Annual Report (32.5%) than in 20F (13.2%), whereas disclosures on the firm’s
strategy are more represented in the 20F (31.2%) than in the Annual Report
(17.2%). Moreover, the percentage of sentences containing forward-looking
information on the external environment is statistically significantly different
between the two documents (13.2% in the 20F and 32.5% in the Annual
Report). Consequently, we can say that the additional forward-looking
Table 6. ANOVA models for country effect

Source Partial SS df F Prob . F
Extent 20F
Model 3,126.901 8 17.49 0.000
Analysts 56.510 1 2.53 0.114
ROE 403.163 1 18.04 0.000
Debt 108.273 1 4.84 0.030
Sales 671.834 1 30.06 0.000
EarSur 324 1 0.01 0.904
FR 8.195 1 0.37 0.546
ITA 140.169 1 6.27 0.014

G 78.019 1 3.39 0.064
Residual 2,771.493 124
Total 5,898.394 132
Obs 133
Adj R-squared 0.4998
Extent AR
Model 744.964 8 11.48 0.000
Analysts 40.563 1 5.00 0.027
ROE 932 1 0.11 0.735
Debt 5 1 0.00 0.979
Sales 279.880 1 34.51 0.000
EarSur 47 1 0.01 0.939
FR 25.565 1 3.10 0.081
ITA 67.968 1 8.38 0.005
G 3.321 1 0.41 0.523
Residual 1,005.623 124
Total 1,750.588 132
Obs 133
Adj R-squared 0.3885
Variables as defined in Table 4.

FR dummy variable ¼ 1 if the home country of the company is France, 0 otherwise.
I dummy variable ¼ 1 if the home country of the company is Italy, 0 otherwise.
G dummy variable ¼ 1 if the home country of the company is Germany, 0 otherwise.
information contained in the 20F is specific information about the company

rather than general information about the surrounding environment.
Similar evidence related to the differences between forward-looking disclos-
ures in the Annual Report and in the 20F emerges in relation with the character-
istics of disclosure. On average, the expected impact of forward-looking
information on the prospective firm’s performance measures is disclosed in
26% of the disclosures in the 20F (on average 87 sentences contain indications
about the expected impact) against 13.1% (on average 22 sentences) in Annual
Reports. The disclosure of measures is similar in the two documents (68.7% in
the 20F and 63.3% in the Annual Report) while the percentage of financially ver-
ifiable information (the percentage of forward-looking information containing a
measure of the expected impact on the firm’s performance) is different: 10.7%
456
S. Bozzolan et al.
Table 7. Test of the differences between FLI in the 20F and in the Annual Report (two-tailed)
N Mean Std. err. t p-value N Mean Std. err. t p-value N Mean Std. err. t p-value N Mean Std. err. t p-value
2002 2003 2004 Overall

Ext20F 45 318.15 29.01 6.92 0.00 45 359.06 32.11 8.11 0.00 43 381.00 34.09 7.97 0.00 133 352.31 18.33 13.32 0.00
ExtAR 45 161.82 16.70 45 171.66 17.27 43 187.93 18.10 133 173.59 9.99
Corstr20F 45 0.553 0.013 3.05 0.00 45 0.553 0.013 2.89 0.00 43 0.561 0.014 2.32 0.02 133 0.312 0.100 13.02 0.00
CorstrAR 45 0.496 0.015 45 0.497 0.014 43 0.513 0.014 133 0.172 0.071
Str20F 45 0.300 0.014 9.72 0.00 45 0.316 0.016 6.99 0.00 43 0.319 0.016 8.53 0.00 133 0.555 0.007 4.80 0.00
StrAR 45 0.147 0.009 45 0.187 0.115 43 0.181 0.011 133 0.501 0.008
Env20F 45 0.147 0.113 210.23 0.00 45 0.121 0.110 29.71 0.00 43 0.110 0.011 28.55 0.00 133 0.132 0.006 216.49 0.00
EnvAR 45 0.357 0.019 45 0.316 0.018 43 0.306 0.019 133 0.325 0.011
Es20F 45 0.239 0.023 4.75 0.00 45 0.275 0.025 5.73 0.00 43 0.266 0.022 5.48 0.00 133 0.260 0.013 9.26 0.00
EsAR 45 0.124 0.124 45 0.142 0.016 43 0.127 0.017 133 0.131 0.009
Ms20F 45 0.676 0.032 1.88 0.03 45 0.690 0.030 2.88 0.00 43 0.695 0.033 2.98 0.00 133 0.687 0.018 4.51 0.00
MsAR 45 0.639 0.033 45 0.628 0.031 43 0.630 0.033 133 0.633 0.019
Ver20F 45 0.101 0.017 1.44 0.15 45 0.111 0.016 2.73 0.00 43 0.109 0.018 3.09 0.00 133 0.107 0.009 3.98 0.00
VerAR 45 0.073 0.016 45 0.070 0.008 43 0.064 0.008 133 0.069 0.006

in the 20F vs. 6.9% in the Annual Report. The percentage of financially verifiable
information is greater in the 20F than in the Annual Report for three of the four
countries analysed: German companies are willing to disclosure more financially
verifiable information in the home document (8.4%) than in the 20F (6.3%). This
different behaviour is not due to less financially verifiable disclosure in the Annual
Report as it is aligned with the percentage showed by companies domiciled in the
other countries analysed (it is even higher on average) but can be attributed to a
lower propensity to disclosure forward-looking financially verifiable information
in the 20F (5.6% vs. 12.1% of Swiss companies, 13.9% of Italian companies and
11.5% of French companies). With respect to the other three countries, German
companies show a higher propensity to disclose a significant percentage of

measures on forward-looking information, both in the 20F and in the Annual
Report (in 20F 34% vs. 9.2% of Swiss companies, 15.3% of Italian companies
and 10.6% of French companies; in Annual Report 31.4% vs. 14.9% of Swiss
companies, 13.7% of Italian companies and 16.6% of French companies).
However, it is important to notice the (statistically significant) positive differ-
ence between the quantity of forward-looking disclosures contained in the 20F
and those contained in the Annual Report, as reported in Table 7 in relation to
the overall sample and to each country.
These results can be interpreted as evidence against the idea that, once the
information is disclosed in one market, it is automatically disclosed in the
other financial market even if it is more ‘information demanding’. Moreover, it
appears that the greater forward-looking disclosures in the 20F for the US
market do not automatically affect the information environment of the local
financial market. We also provide evidence that the 20F contains significantly
more forward-looking disclosures that explicitly describe the direction of the
expected development of future performance (variable Es20F ). The proportion
of forward-looking disclosure that provides in addition a quantification of the
expected effect of the future development (variable Ms) is significantly higher
in the 20F (Ms20F ) than in the Annual Report (MsAR) as well as the percentage
of verifiable disclosure included in the 20F (Ver20F ) with respect to that con-
tained in the Annual Report (VerAR).
Tables 8 and 9 provide a description of the dependent, independent and control
variables and their correlations. Table 9 reports that accuracy (Acc) is positively
correlated with the extent of forward-looking disclosure both in the 20F (Ext20F:
0.28) and in the Annual Report (ExtAR: 0.27) and with the percentage of forward-
looking information about the expected impact on future performance (EsAR:
0.40) as well as the percentage of forward-looking information containing a
measure (MsAR: 0.19) in the Annual Report. Financially verifiable forward-
looking information both in the 20F (Ver20F: 0.42) and in the Annual Report
(VerAR: 0.45) is positively correlated with the level of accuracy. It seems to
emerge that extensive disclosure of measures of the effects of information dis-
closed alone and together with its financial verifiability facilitates earnings fore-
casts. Of the control variables, larger firms (Size) are associated with higher
Table 8. Distribution of the variables

Percentile
Min Obs Mean Std. dev. 25% 50% 75% Max
Dependent variables
Accuracy 133 20.126 0.217 20.942 20.137 20.013 20.003 0
Dispersion 133 2.811 2.277 0 1.264 2.062 3.652 10.846
Disclosure variables
Ext20F 133 352.31 211.38 106 207 301 425 1,083
Idx20F 133 0.325 0.195 0.097 0.191 0.277 0.392 1.000
Corstr20F 133 0.555 0.091 0.373 0.481 0.560 0.613 0.783

Str20F 133 0.312 0.100 0.065 0.239 0.298 0.366 0.560
Env20F 133 0.132 0.076 0.000 0.086 0.133 0.185 0.322
Es20F 133 0.260 0.158 0.001 0.147 0.220 0.354 0.720
Ms20F 133 0.687 0.209 0.000 0.594 0.716 0.812 0.995
Ver20F 133 0.107 0.111 0.002 0.009 0.083 0.163 0.474
ExtAR 133 173.59 115.16 16 98 145 216 513
IdxAR 133 0.338 0.224 0.031 0.191 0.282 0.421 1.000
CorstrAR 133 0.501 0.098 0.190 0.435 0.494 0.558 0.736
StrAR 133 0.172 0.071 0.018 0.122 0.163 0.215 0.359
EnvAR 133 0.325 0.127 0.052 0.232 0.306 0.400 0.647
EsAR 133 0.131 0.111 0.000 0.064 0.104 0.167 0.578
MsAR 133 0.633 0.216 0.000 0.500 0.649 0.758 0.993
VerAR 133 0.069 0.076 0.000 0.003 0.071 0.102 0.613
DiffExt 133 178.72 154.7 2124 98 146 241 828
DiffEs 133 0.128 0.160 20.271 0.025 0.104 0.236 0.488
DiffMs 133 0.054 0.138 20.591 0.000 0.047 0.116 0.375
DiffVer 133 0.038 0.111 20.536 0.646 0.179 0.251 0.437
TR_DiffExt 133 183.09 148.00 0 98 146 241 828
TR_DiffEs 133 0.146 0.134 0.000 0.025 0.104 0.236 0.488
TR_DiffMs 133 0.078 0.090 0.000 0.000 0.042 0.116 0.375
TR_DiffVer 133 0.055 0.000 0.000 0.065 0.179 0.251 0.437
AB_DiffExt 133 183.09 148.00 0 98 146 241 828
AB_DiffEs 133 0.146 0.134 0.000 0.025 0.104 0.236 0.488
AB_DiffMs 133 0.078 0.090 0.000 0.000 0.042 0.116 0.375
AB_DiffVer 133 0.055 0.000 0.000 0.065 0.179 0.251 0.437
Control variables
ROE 133 8.20 26.72 2104.87 1.39 10.76 19.45 106.61
Debt 133 43.66 21.87 1.09 29.83 46.43 59.94 100.24
Size 133 16.14 1.57 11.92 15.31 16.13 17.35 19.00
EarSur 133 1.423 1.635 0.003 0.096 0.989 1.419 9.323
Analysts 133 25.17 12.12 2 16 26 33 47
forecast accuracy (0.40) meaning that the average forecast error is smaller for
larger companies. The analysis of correlation shows also that accuracy is posi-
tively associated with the difference in extent between the forward-looking
Table 9. Pearson correlation coefficients (upper half) and p-values (lower half)
Acc Disp Ext20F Idx20F Es20F Ms20F Ver20F ExtAR IdAR EsAR MsAR VerAR

Acc 0.227 0.288 0.288 0.041 0.096 0.425 0.276 0.276 0.403 0.196 0.456
Disp 0.008 0.796 0.796 20.441 0.213 20.223 0.599 0.599 0.001 0.204 20.302
Ext20F 0.000 0.000 1.000 20.298 0.183 20.124 0.698 0.698 0.046 0.141 0.188
Idx20F 0.000 0.000 0.000 20.298 0.183 20.124 0.698 0.698 0.046 0.141 0.188
Es20F 0.640 0.000 0.005 0.005 20.360 0.544 20.264 20.264 0.332 20.398 0.081
Ms20F 0.269 0.014 0.034 0.034 0.000 0.061 0.215
0.215 20.414
0.788 20.052
Ver20F 0.000 0.009 0.152 0.152 0.000 0.061 0.001 0.001 0.338 20.143 0.347
ExtAR 0.001 0.000 0.000 0.000 0.002 0.012 0.990 1.000 20.120 0.154 0.193
IdxAR 0.001 0.000 0.000 0.000 0.002 0.012 0.990 0.000 20.120 0.154 0.193
CorstrAR 0.927 0.009 0.006 0.006 0.546 0.013 0.523 0.000 0.000 20.207 0.213 20.159
StrAR 0.071 0.011 0.175 0.175 0.174 0.834 0.564 0.329 0.329 0.142 0.124 20.360

EnvAR 0.346 0.552 0.180 0.180 0.768 0.043 0.864 0.011 0.011 0.080 20.2359 0.144
EsAR 0.000 0.984 0.596 0.596 0.000 0.000 0.000 0.166 0.166 0.3545 0.514
MsAR 0.023 0.018 0.104 0.104 0.000 0.000 0.100 0.075 0.075 0.020 0.025
VerAR 0.000 0.000 0.030 0.030 0.353 0.549 0.000 0.025 0.025 0.000 0.773
DiffExt 0.030 0.000 0.000 0.000 0.014 0.304 0.048 0.015 0.015 0.078 0.371 0.197
DiffEs 0.005 0.000 0.000 0.000 0.000 0.448 0.000 0.042 0.042 0.000 0.003 0.001
DiffMs 0.064 0.996 0.000 0.000 0.379 0.001 0.800 0.331 0.331 0.000 0.000 0.174
DiffVer 0.198 0.000 0.519 0.519 0.000 0.145 0.000 0.129 0.129 0.872 0.064 0.000
TR_DiffExt 0.111 0.000 0.003 0.003 0.012 0.290 0.067 0.003 0.003 0.073 0.388 0.153
TR_DiffEs 0.010 0.000 0.000 0.000 0.000 0.043 0.000 0.008 0.008 0.010 0.000 0.013
TR_DiffMs 0.111 0.254 0.000 0.000 0.020 0.383 0.275 0.683 0.683 0.934 0.000 0.357
TR_DiffVer 0.003 0.000 0.496 0.496 0.000 0.150 0.000 0.399 0.399 0.487 0.207 0.624
ROE 0.982 0.000 0.007 0.007 0.318 0.942 0.183 0.075 0.075 0.857 0.478 0.935
Debt 0.971 0.000 0.000 0.000 0.551 0.088 0.983 0.001 0.001 0.783 0.003 0.387
Size 0.000 0.000 0.000 0.000 0.066 0.022 0.388 0.000 0.000 0.453 0.197 0.008
EarSur 0.110 0.000 0.000 0.000 0.008 0.062 0.421 0.002 0.002 0.265 0.089 0.457
Analysts 0.926 0.017 0.001 0.001 0.008 0.866 0.616 0.001 0.001 0.439 0.952 0.128
(Table continued)
460
Table 9. Continued
DiffExt DiffEs DiffMs DiffVer TR_DiffExt TR_DiffEs TR_DiffMs TR_DiffVer ROE Debt Size EarSur Analysts
S. Bozzolan et al.
Acc 0.187 20.240 20.160 0.112 0.205 20.221 20.138 0.257 20.002 20.003 0.405 0.139 20.007
Disp 0.635 20.436 0.037 20.432 0.650 20.510 20.099 20.371 20.367 0.339 0.542 0.530 0.205
Ext20F 0.846 20.326 0.056 20.254 0.234 0.861 20.357 20.229 20.453 0.385 0.605 0.267 0.294
Ind20F 0.846 20.326 1.056 20.254 0.328 0.861 20.357 20.229 20.453 0.385 0.605 0.267 0.294
Es20F 20.211 0.754 0.076 0.490 20.215 0.815 0.201 0.538 0.087 0.052 20.159 20.227 20.227
Ms20F 0.089 20.066 0.281 0.126 0.092 20.175 0.076 0.125 20.006 20.148 0.198 0.162 20.014
Ver20F 0.171 0.300 20.22 0.763 20.158 0.363 0.095 0.891 0.116 20.001 0.075 20.070 0.043
ExtAR 0.210 20.176 0.084 20.132 0.255 20.229 20.035 20.073 20.154 0.268 0.597 0.259 0.334
IndAR 0.210 20.176 1.084 20.133 0.255 20.229 20.035 20.073 20.154 0.268 0.597 0.259 0.334
EsAR 0.1532 20.3691 20.313 20.0141 0.156 20.221 20.007 0.062 0.016 0.024 0.065 20.097 20.067
MsAR 0.0781 20.2524 20.368 20.161 0.075 20.298 20.442 20.110 0.062 20.254 0.112 0.148 0.005
VerAR 0.1126 20.2779 20.118 20.3402 0.124 20.214 20.080 0.043 0.007 20.075 0.288 20.065 0.132
DiffExt 20.3146 0.014 20.2494 0.992 20.318 20.055 20.259 20.505 0.327 0.382 0.173 0.153
DiffEs 0.000 0.293 0.4928 20.321 0.957 0.203 0.487 0.075 0.035 20.203 20.156 20.177
DiffMs 0.874 0.000 0.059 0.022 0.199 0.805 20.018 20.106 0.172 0.124 0.014 20.030
DiffVer 0.003 0.000 0.498 20.245 0.512 0.151 0.864 0.111 0.050 20.122 20.026 20.047
TR_DiffExt 0.000 0.000 0.802 0.004 20.325 20.054 20.256 20.527 0.347 0.403 0.176 0.158
TR_DiffEs 0.000 0.000 0.021 0.000 0.000 0.180 0.534 0.087 20.003 20.238 20.226 20.153
TR_DiffMs 0.531 0.018 0.000 0.083 0.539 0.038 0.060 20.048 0.038 0.007 20.057 20.052
TR_DiffVer 0.002 0.000 0.836 0.000 0.002 0.000 0.491 0.140 20.043 20.110 20.137 20.054
ROE 0.000 0.391 0.223 0.201 0.000 0.321 0.584 0.106 20.322 20.325 20.113 0.050
Debt 0.001 0.692 0.047 0.566 0.000 0.969 0.662 0.621 0.002 0.418 0.219 20.007
Size 0.000 0.019 0.154 0.160 0.000 0.005 0.936 0.207 0.001 0.000 0.275 0.383
EarSur 0.046 0.072 0.870 0.768 0.042 0.008 0.510 0.115 0.194 0.011 0.001 0.041
Analysts 0.077 0.041 0.728 0.589 0.068 0.076 0.549 0.536 0.565 0.933 0.000 0.638

Significant correlations are in bold.

Significance at 5%.
information contained in the 20F and those in the Annual Report (DiffExt: 0.18).
Table 9 reports also that dispersion (Disp) is positively correlated with the exten-
sion of forward-looking disclosure both in the 20F (Ext20F: 0.79) and in the
Annual Report (ExtAR: 0.59) as well as negatively correlated with the percentage
of verifiable information in the 20F (Ver20F: 20.22) while it is positively corre-
lated with the percentage of financially verifiable information in the Annual
Report (VerAR: 0.30). While the dispersion in the mean of analysts’ earnings
forecasts is associated with more forward-looking disclosures, it is negatively
correlated with the percentage of forward-looking disclosure reinforced in the
20F with the communication of the expected impact on performance measures
(Es20F: 20.44) while it is positively correlated with the disclosure of a

measure (Ms20F: 0.21).
These results may seem contradictory. However, we should notice that there is
a positive correlation in the Annual Report between the extent of forward-looking
disclosures and its level of financial verifiability. Hence the percentage of finan-
cially verifiable information increases at the same time as the overall quantity of
non-financially verifiable information. This is not the case for the 20F, where the
correlation between financial verifiability and the quantity of forward-looking
information is not significant. Consequently, at a preliminary descriptive level,
we conjecture that an increase in the financial verifiability of forward-looking
information reduces analysts’ forecasts dispersion only when it is not associated
with an increase in the overall quantity of information.
As regards the content of forward-looking information, different linear
relations emerge with the dispersion. While forward-looking information in the
20F about the corporate structure and operations is negatively associated with
dispersion (Corstr20F: 20.21), in the Annual Report the same type of infor-
mation is positively associated with dispersion (CorstrAR: 0.22) and forward-
looking information about strategy results negatively related to dispersion
(StrAR: 20.21). Of the control variables the variability of past accounting earn-
ings, the dimension of the firm and the number of analysts following the company
show positive correlation with dispersion (EarSur: 0.53; Size: 0.54; and Analysts:
0.20). Considered together, they represent the role of public information in
driving earnings forecasts. On the one side, a large earnings change complicates
earnings forecast and, on the other side, the number of analysts following the
company reduces their incentives to look for and use private information. The
negative correlation between dispersion and profitability (ROE: 20.36) and the
positive correlation between dispersion and leverage (Lev: 0.31) show that the
variability of earnings forecasts around the mean is lower for more profitable
firms but increases in more leveraged firms.
4.2. Multivariate Analysis

In order to test our hypotheses, we use full and reduced versions of the following
four equations: the first two for forward-looking information in the 20F and the
following two for forward-looking information in the Annual Report:
Accit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit

þ b6 Idx20Fit þ b7 Es20Fit þ b8 Ms20Fit þ b9 Ver20Fit þ 1it
Dispit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit
þ b6 Idx20Fit þ b7 Es20Fit þ b8 Ms20Fit þ b9 Ver20Fit þ 1it
Accit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurpit þ b5 Sizeit
þ b6 IdxARit þ b7 EsARit þ b8 MsARit þ b9 VerARit þ 1it
Dispit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurpit þ b5 Sizeit
þ b6 IdxARit þ b7 EsARit þ b8 MsARit þ b9 VerARit þ 1it
where
. i identifies the company;

. t identifies the year;
. independent and dependent variables are defined as in Table 4;
. country dummies are not presented in the model or tabulated in the results as,
in initial regression runs, they did not emerge as statistically significant.
Given our research hypotheses, we decide to focus only on the role of the finan-
cial verifiability of disclosures on forecast properties. We do not have any expec-
tation about the association between the topic of forward-looking disclosure and
analysts’ forecasts. Hence we do not include as separate independent variables
the percentage of disclosures related to the description of corporate strategy, to
corporate structure and operations, and to the external environment. When
these disclosures are not verifiable, according to our definition, they are simply
considered additional sentences in our measure of the overall level of forward-
looking disclosure. If they are financially verifiable, then they obviously count
for the calculation of the financial verifiability score.
Preliminary tests run on our panel2 indicate the presence of heteroscedasticity
for both the accuracy and the dispersion regressions, whereas serial correlation is
detected only in the dispersion case. Hence we estimate our models using a
Generalised Least Square fixed effects technique corrected for heteroscedasticity
in all cases and also corrected for serial correlation in the dispersion case.
Table 10 contains multiple regression results for the relation between forecast
accuracy and the extent and the characteristics of forward-looking disclosure.
Models A1 – A3 refer to forward-looking disclosure of the 20F and models
A4 – A6 refer to the Annual Report. We use the same set of control variables
in each model. Models A1 and A4 use all the disclosure variables. Models A2
and A5 consider only quantity and verifiability, whereas models A3 and A6
split verifiability into its two components: the direction of the expected impact
and the presence of a measure.
Table 10. Panel data regression models of forecast accuracy

Accit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit
þ b6 Idx20Fit þ b7 Es20Fit þ b8 Ms20Fit þ b9 Ver20Fit þ 1it (A1) (A3)
Accit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurpit þ b5 Sizeit þ b6 IdxARit
þ b7 EsARit þ b8 MsARit þ b9 VerARit þ 1it (A4) (A6)
A1 A2 A3 A4 A5 A6
Control variables
Analysts 20.005 20.005 20.004 20.003 20.004 20.003
(6.21) (6.57) (7.94) (6.53) (8.36) (6.76)

ROE 0.001 0.001 0.001 0.001 0.001 0.001
(2.37) (2.29) (2.58) (4.81) (4.91) (5.94)
Debt 20.002 20.002 20.003 20.001 20.001 20.001
(5.51) (6.94) (9.29) (2.75) (6.78) (4.52)
Sales 0.050 0.049 0.061 0.048 0.049 0.053
(7.19) (6.99) (11.36) (8.08) (8.19) (10.10)
EarSur 0.004 0.009 0.006 0.006 0.005 0.005
(1.16) (2.75) (1.41) (3.23) (1.89) (2.85)
Constant 20.769 20.853 20.945 20.929 20.842 21.023
(8.03) (8.40) (11.52) (10.04) (9.26) (12.44)
Idx20F 0.205 0.243 0.241
(3.40) (4.33) (4.70)
Es20F 20.171 0.169
(2.73) (5.07)
Ms20F 20.054 20.080
(1.36) (2.55)
Ver20F 0.784 0.710
(10.65) (11.49)
IdxAR 0.113 0.099 0.123
(4.75) (3.46) (4.38)
EsAR 0.413 0.641
(4.07) (10.80)
MsAR 0.059 0.096
(1.84) (3.47)
VerAR 0.518 0.744
(3.67) (11.72)
Observations 133 133 133 133 133 133
Chi2 156.94 170.73 216.53 281.36 257.03 343.50
Prob . chi2 0.00 0.00 0.00 0.00 0.00 0.00

Absolute value of z statistics in parentheses.

Significant at 5%; significant at 1%.
The quantity of forward-looking disclosure is always positively associated

with forecast accuracy at the 1% level. This evidence is consistent with several
empirical studies carried on different capital markets (Hope, 2003b), different
channels of disclosure (Lang and Lundholm, 1996) and in relation with different
types of disclosure (Vanstraelen et al., 2003).
Also in all models, a strong positive statistical association emerges between the
percentage of financially verifiable forward-looking information and accuracy.
These results empirically support our hypothesis 1: the disclosure of financially
verifiable forward-looking information increases the accuracy of analysts’
estimates and this is true for both the 20F and the Annual Report.
Our first hypothesis is also confirmed when we look at the two dimensions of
financial verifiability, when they are statistically significant. The only exception
is the measurability dimension for the 20F in model A3. However, the statistical
significance of this coefficient is smaller than in all the other cases.

Table 11 contains panel data fixed effects regression results for the relation
between forecast dispersion and the extent and the characteristics of forward-
looking disclosure. Models D1 –D3 refer to forward-looking disclosure in
the 20F and models D4 –D6 refer to those contained in the Annual Report.
The interpretation of these specifications is analogous to the one already pre-
sented for forecast accuracy.
For all the models the quantity of forward-looking information increases dis-
persion. Hence, we find evidence that supports the idea that different analysts can
interpret the same information in a divergent way and that these discrepancies
can become more pronounced as the overall amount of information increases.
This result is consistent with both the theoretical analysis of Harris and Raviv
(1993), and the empirical results of Barron et al. (2002).
When we focus on the effect of financially verifiable information we find a
puzzling result. If we look at the 20F we observe a negative effect on forecast
dispersion as predicted by our hypothesis 2. However, when we consider the
Annual Report, we observe a positive effect on forecast dispersion. An expla-
nation to this puzzle can be found by looking at the correlations between the
quantity of forward-looking information and its financial verifiability (see
Table 9). In the Annual Report, we observe a significant and positive correlation
between the quantity of forward-looking information provided and the percen-
tage of financially verifiable statements. This means that those Annual Reports
that contain a higher percentage of financially verifiable information also
contain more information. Hence the financially verifiable information gets
mixed with a greater amount of non-financially verifiable information. This con-
fusion could explain the resulting increase in the dispersion of forecasts. On the
contrary, in the 20F there is no significant correlation between the amount of
forward-looking information provided and the percentage of financially verifi-
able statements. Hence, in the 20F the overall amount of forward-looking infor-
mation provided does not necessarily vary with its level of financial verifiability.
Therefore, an increase in the overall financial verifiability of the information
unequivocally reduces the dispersion of analysts’ forecasts.
The previous empirical evidence reported a negative relation between dis-
persion and, respectively, the total Annual Report disclosure (Lang and
Table 11. Panel data regression models of forecast dispersion

Dispit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit
þ b6 Idx20Fit þ b7 Es20Fit þ b8 Ms20Fit þ b9 Ver20Fit þ 1it (D1) (D3)
Dispit ¼ ai þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurpit þ b5 Sizeit þ b6 IdxARit
þ b7 EsARit þ b8 MsARit þ b9 VerARit þ 1it (D4) (D6)
D1 D2 D3 D4 D5 D6
Control variables
Analysts 20.023 20.012 20.025 0.004 0.001 0.010
(7.39) (2.78) (8.33)
(1.06) (0.26) (1.63)

ROE 20.000 20.000 20.000 20.016 20.023 20.016
(0.17) (0.20) (0.26) (5.19) (12.92) (5.12)
Debt 20.000 20.002 20.001 0.016 0.011 0.012
(0.08) (0.79) (0.46) (7.29) (4.36) (4.36)
Sales 0.232 0.229 0.217 0.030 0.068 0.164
(5.19) (4.69) (4.53) (0.70) (1.59) (2.73)
EarSur 0.381 0.406 0.380 0.682 0.672 0.598
(13.44) (23.72) (14.14) (12.58) (14.75) (11.47)
Constant 22.059 23.015 21.916 21.430 21.187 22.879
(3.17) (4.53) (2.69) (2.62) (2.16) (3.85)
Idx20F 7.129 7.213 7.165
(29.54) (20.35) (31.88)
Es20F 22.378 22.461
(12.35) (12.01)
Ms20F 20.508 20.279
(3.28) (1.65)
Ver20F 20.906 22.076
(3.60) (6.49)
IdxAR 3.275 3.893 3.940
(13.22) (11.08) (10.38)
EsAR 20.470 1.493
(1.62) (3.64)
MsAR 1.146 0.199
(6.58) (0.67)
VerAR 5.870 6.116
(8.09) (11.04)
Observations 133 133 133 133 133 133
Chi2 test 4,794.86 9,355.51 3,584.73 1,528.42 5,609.16 2,426.74
Prob . chi2 0.00 0.00 0.00 0.00 0.00 0.00


Lundholm, 1996), two sub-components (capital expenditures and operations) of

forward-looking disclosure (Barron et al., 1999) and forward-looking disclosure
of non-financial information (Vanstraelen et al., 2003).
None of these studies made a clear distinction between financially verifiable

and non-verifiable information. Our results show the importance of distinguishing
between these two categories of information when studying the effects of disclos-
ure on forecast dispersion. Quantity and quality effects must be separated. Given a
certain quantity of non-financially verifiable information disclosed, an increase in
its quality (in our case defined as financially verifiable) reduces dispersion.
However, if the quantity of non-financially verifiable information is increasing,
its confounding effect can more than compensate for the potentially positive
effect of a contemporary increase in the quality of the information disclosed.
Due to the methodological differences, our results cannot be directly compared
to previous empirical studies and consequently they do not necessarily contradict

them. Overall our evidence is in favour of our hypothesis 2 for the 20F,
whereas the evidence is inconclusive for the Annual Report.
As an extension of our previous analysis, we now move to the differential analy-
sis in order to explore more directly the effect of the additional forward-looking
information contained in the 20F with respect to the Annual Report. Our univariate
tests have already shown that there exist statistically significant differences in the
extent, content, characteristics and financial verifiability between forward-looking
information disclosure of the 20F and of the Annual Report.
In order to test whether these differences are associated or not with the
forecast’s accuracy and dispersion, we use the following regression models:
Accit ¼ a þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit

þ b6 Diffit þ b7 DiffEsit þ b8 DiffMsit þ b9 DiffVerit þ 1
Dispit ¼ a þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit
þ b6 Diffit þ b7 DiffEsit þ b8 DiffMsit þ b9 DiffVerit þ 1:
The only difference between these models and those used so far is that the dis-
closure variables for the 20F and Annual Report have been substituted by a differ-
ence variable defined as the value of the original variable in the 20F minus the
value of the same variable in the Annual Report. Hence, a positive value for
the difference means that the 20F contains more forward-looking disclosures
whereas a negative value means that it is the Annual Report that contains more
forward-looking disclosures.
We run our regressions using both the raw (signed) difference, the truncated
value of the difference (i.e. equal to 0 if the difference is negative) and the absol-
ute value of the difference. In Table 12 we present the results of estimating these
difference models.
Additional forward-looking disclosures always increase accuracy and always
increase dispersion in a statistically significant way. This is true no matter
which one of the two documents analysed contains more forward-looking infor-
mation. These results confirm our previous findings: an increase in the quantity of
forward-looking information increases both accuracy and dispersion thus having
Table 12. Panel data regression models of forecast accuracy and dispersion on differential
disclosure
Accit =Dispit ¼ a þ b1 Analystsit þ b2 ROEit þ b3 Debtit þ b4 EarSurit þ b5 Sizeit
þ b6 Diffit þ b7 DiffEsit þ b8 DiffMsit þ b9 DiffVerit þ 1
Accuracy Dispersion
Diff A1 Diff A2 Diff A3 Diff D1 Diff D2 Diff D3
Control variables
Analysts 20.005 20.005 20.004 20.000 20.004 20.002
(8.18) (7.92) (7.55) (0.04) (1.20) (0.33)
ROE 0.001 0.001 0.001 20.006 20.003 20.003

(3.48) (3.73) (3.96) (4.05) (1.95) (2.00)
Debt 20.002 20.002 20.002 0.004 0.007 0.004
(6.15) (6.73) (5.92) (2.29) (3.62) (1.82)
Sales 0.071 0.062 0.056 0.213 0.226 0.207
(11.10) (11.08) (8.78) (5.43) (5.80) (4.65)
EarSur 20.000 0.001 0.009 0.571 0.442 0.468
(0.01) (0.16) (3.43) (10.00) (9.63) (10.29)
Constant 21.070 20.945 20.936 22.095 22.051 21.674
(12.16) (11.26) (9.89) (3.56) (3.54) (2.77)
Differential disclosure variables
Diff 0.000 0.005
(3.92) (15.93)
DiffEs 20.181 22.002
(2.85) (7.90)
DiffMs 20.180 20.458
(2.88) (1.93)
DiffVer 0.395 23.615
(4.55) (8.21)
TR_Diff 0.000 0.005
(5.51) (15.41)
TR_DiffEs 20.399 23.810
(5.56) (13.75)
TR_DiffMs 20.266 20.495
(3.46) (1.80)
TR_DiffVer 0.984 21.974
(12.24) (4.39)
AB_Diff 0.000 0.006
(5.92) (12.74)
AB_DiffEs 20.256 25.055
(3.96) (19.10)
AB_DiffMs 0.127 20.558
(1.46) (1.69)
AB_DiffVer 0.891 1.194
(11.14) (1.93)
(Table continued)
Table 12. Continued

Accuracy Dispersion
Diff A1 Diff A2 Diff A3 Diff D1 Diff D2 Diff D3
Observations 133 133 133 133 133 133

Groups 45 45 45 45 45 45
Chi2 test 194.91 271.77 227.52 2,927.12 2,185.87 1,281.84
Prob . chi2 0.00 0.00 0.00 0.00 0.00 0.00


a positive effect on the first (accuracy) but a negative effect on the latter
(dispersion). A higher percentage of verifiable forward-looking disclosures
always increases accuracy independently of the document. These results support
our hypothesis 3. A higher percentage of financially verifiable information in the
20F also reduces dispersion, supporting our hypothesis 4. Only in the case of
absolute differences, the coefficient is not significant.
It is interesting to notice that you need a higher level of both elements of finan-
cial verifiability (Expected Sign – Es, and Measure – Ms) in the 20F in order to
observe its positive effects on accuracy. The marginal effect of a higher percentage
of sentences indicating the direction of the impact (Es) or of a higher percentage of
sentences providing a measure of the impact (Ms) reduces accuracy unless the
two features come together and are reflected in a higher percentage of overall
verifiable sentences. Again this result is also explained by the negative correlation
existing between the two aspects of financial verifiability.
However, a higher percentage of forward-looking sentences, which clearly
indicate in which direction (positive or negative) future performance is expected,
in the 20F with respect to the Annual Report always reduces forecast dispersion
even if it is not supported by a measurable impact.
5. Discussion
Using a sample of companies chosen from low disclosure requirement countries
(Italy, France, Switzerland and Germany) that cross-list on the NYSE, we ana-
lysed the effect of the disclosure of forward-looking information on analysts’
forecast properties: accuracy and dispersion. Our disclosure data are based on
the original narrative disclosures contained in two different documents: the
domestic Annual Report and the 20F required in order to list in the USA.
To the best of our knowledge this is the first study that looks directly at the
original narrative documents in order to test the relationship between disclosure
and analysts’ forecast properties for a sample of cross-listed companies. Our
analysis is innovative for two reasons.
First, it is the first study that looks at the possible effects of financially verifi-
able information as opposed to unverifiable information in shaping analysts’
forecast properties where financial verifiability is defined as the disclosure of
expected effects on future financial performance and the disclosure of a
measure of this impact. We are able to show that the percentage of financially
verifiable forward-looking information is positively associated with accuracy
no matter which document contains the information. With respect to dispersion,
only the percentage of financially verifiable information contained in the 20F
reduces it while the percentage of financially verifiable information contained
in the Annual Report increases it. We provide an explanation for this result
based on the confounding effect created by the increase in the overall level of
non-financially verifiable forward-looking information that unequivocally
increases the dispersion of analysts’ forecasts.
Second, as an extension of our previous analysis, we also test the possible
effects of the differences between the financially verifiable content of the local
Annual Report and the financially verifiable content of the 20F as a source of
value-relevant information for analysts. A greater quantity of forward-looking
information increases accuracy but it also increases dispersion. Only a higher per-
centage of verifiable forward-looking information disclosure always improves
accuracy and always reduces dispersion. These results confirm the importance
to distinguish between financially verifiable and non-verifiable information
while studying the effects of disclosure.
Our results are consistent with the idea that the 20F is the main source of infor-
mation for analysts covering cross-listed European companies. In the majority of
cases, the 20F contains more and a higher percentage of financially verifiable
forward-looking disclosures than the Annual Report. For the few cases for
which the percentage of financially verifiable forward-looking disclosures is
greater in the Annual Report, it is still the case that the 20F contains more disclos-
ures. This is proved by the fact that the correlation between the difference in the
extent of forward-looking disclosures (Diff ) and the difference in the percentage
of financially verifiable forward-looking disclosures (DiffVer) between the 20F
and the Annual Report is significant and negative. Hence, when the Annual
Report is relatively more financially verifiable, this is because the additional
forward-looking disclosures contained in the 20F are not verifiable (cheap
talk). So it is not surprising that in these cases, assuming that the 20F is the
main reference document, the dispersion of analysts’ forecasts increases.
The differences between the quantity of forward-looking information con-
tained in the 20F and in the Annual Report are significant. This result can be
interpreted as evidence against the idea that, in the case of cross-listing firms,
the stricter disclosure requirements associated with one of the markets where
the company is listed are automatically adopted also for the documents produced
for the other markets. Domestic annual reports still contain less forward-looking
information even after a company decides to cross-list in the USA. In other
words, cross-listed companies decide to not disclose domestically information
that they have to prepare and disclose in the USA either voluntarily because of the
expected impact on the market or mandatorily because of the legal requirements.
Hence our analysis is in line with the evidence provided by Siegel (2005) about
the possible limitations of the ‘bonding’ effect of cross-listing in the USA for
non-US companies. Using the financial reporting environment as a proxy for
external financial reporting incentives, we interpret these findings as supporting
the idea, suggested among others by Ball et al. (2003), that these external finan-
cial reporting incentives play a crucial role in shaping the financial reporting
activity of the firm, over and above internal financial reporting incentives.
Given that the 20F is a public document available also to local users, it would
be interesting to investigate the reasons why companies adopt this differential

disclosure strategy in the two documents. It could be because, once a company
is cross-listed, the domestic annual report is considered a less important docu-
ment and in that document the disclosure is kept at a minimum legal level.
Those users that are interested in more comprehensive disclosures are satisfied
by the 20F anyway. There could be also important timing effects involved.
In general the 20F becomes available after the local Annual Report. So the differ-
ential disclosures could be due to the willingness of the company to disclose
some relevant information later. We believe that the study of these issues
could be a promising topic for future research.
Appendix. 20F Form. Content of Part I

Item 1. Identity of directors, senior management and advisers
Item 2. Offer statistics and expected timetable
Item 3. Key information
Item 4. Information on the group business
Item 5. Operating and financial review and prospects. General factors affecting
the company
Item 6. Directors. Senior management and employee directors
Item 7. Major shareholders and related-party transaction
Item 8. Financial information. Historical Financial Statements/Unaudited
condensed consolidated pro forma statements
Item 9. Listing. Trading of company’s shares
Item 10. Additional information on Corporate Governance
Item 11. Quantitative and qualitative disclosure about market risk
Item 12. Description of securities other than equity securities
Item 13. Defaults, dividend arrangements and delinquencies.
Acknowledgements
The authors would like to thank Salvador Carmona (Editor), two anonymous
referees, Miles Gietzmann, Christian Leuz, Antonio Parbonetti and seminar –
workshop participants at the London School of Economics, University of
Tilburg, EAA Congress in Lisbon and the Financial Reporting and Business
Communication Conference at Cardiff Business School for their comments and
suggestions. Marco Trombetta gratefully acknowledges the financial support of
the Spanish Ministry of Education through grant SEJ2007-67582-CO2-01.
Sergio Beretta gratefully acknowledges the financial support of Bocconi Univer-
sity (Ricerca di Base and CAFRA Research Center). Saverio Bozzolan gratefully
acknowledges the financial support of the Italian Ministry of Research through
the project 20079RNFBS: Disclosure quality, financial analysts’ forecasts and
investment strategies. The authors also gratefully acknowledge the contribution
of the International Brokers Estimate System (I/B/E/S) International Inc. for
providing EPS forecast data. Any remaining errors are ours.
Notes
1
A list of the items included in Part I of the 20F can be found in the Appendix.
2
The results of these tests, not tabulated, are available from the authors and they have been
provided to the referees.
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SAVERIO BOZZOLAN , MARCO TROMBETTA and

ABSTRACT Forward-looking disclosures are a crucial source of information when

Correspondence Address: Saverio Bozzolan, Department of Economics and Management, University

0963-8180 Print/1468-4497 Online/09/030435–39 # 2009 European Accounting Association

forward-looking perspective, in order to meet users’ needs. It should specifically

indicate the expected impact on company performance and that provide a

increase the dispersion of forecasts.

2. Literature Review and Hypothesis Development

Barron et al. (1999) demonstrate that information contained in MD&A has

Previous empirical studies mainly agree in detecting a positive relationship

H1: Forecast accuracy is positively related to the percentage of financially

H2: Forecast dispersion is negatively related to the percentage of financially

As an extension of our main analysis, we exploit the special features of our

H3: Forecast accuracy is positively associated with the additional financially

H4: Forecast dispersion is negatively associated with the additional financially

3. Sample and Variables

3.2. Dependent Variables

Table 1. The sample: non-financial cross-listed companies

Air France F Merged with KLM 2002/2004

3.2.1. Independent variables

information in three categories: strategy (goals for performance, mission, broad

. (0, 0, 0) if the sentence does not contain forward-looking information;

Some examples are presented in Table 2.

Company Source Content Coding

A Study of Cross-Listed European Firms 445

closure score) by counting the number of sentences including forward-looking

Table 3. An example of the scoring procedure

The second measure is expressed in ‘relative terms’. We have different options

analysis, we define the percentage of financially verifiable forward-looking

ing expected firm performance, the percentage of information containing a

to what would be expected by chance. Four alpha agreement coefficients are

(b) Control variables

Hope, 2003a; Vanstraelen et al., 2003).

Table 4. Definition of the variables and data sources

Analysts Number of analysts following the I/B/E/S database

Ext20F Extent of forward-looking disclosure Self-constructed index

Diff Ext20F 2 ExtAR Self-constructed index

Table 5. Descriptive statistics of disclosure variables by country of origin

Ms20F 27 0.639 0.092 0.475 0.580 0.613 0.718 0.817

ExtAR 26 192.07 177.17 16 42 60 336 513

MsAR 26 0.672 0.137 0.402 0.594 0.716 0.794 0.837

Disclosure variables as defined in Table 4.

generally higher, more forward-looking information is provided when the finan-

Table 6. ANOVA models for country effect

ITA 140.169 1 6.27 0.014

Variables as defined in Table 4.

information contained in the 20F is specific information about the company

2002 2003 2004 Overall

Variables as defined in Table 4.

companies show a higher propensity to disclose a significant percentage of

Table 8. Distribution of the variables

Corstr20F 133 0.555 0.091 0.373 0.481 0.560 0.613 0.783

Variables as defined in Table 4.

A Study of Cross-Listed European Firms 459

Variables as defined in Table 4.

(Es20F: 20.44) while it is positively correlated with the disclosure of a

4.2. Multivariate Analysis