An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Millicent Chang
University of Western Australia

Livern Leow
University of Western Australia

Iain Watson
University of Western Australia

Abstract: Trueman’s (1986) talent-signalling hypothesis suggests that a manager has incentives to voluntarily disclose earnings forecasts because it signals his ability to anticipate and react to economic conditions affecting the firm. The manager is also concerned about shareholders’ perceptions of his ability because these perceptions influence their decisions on the remuneration he receives. We examine whether CEOs use earnings forecasts to signal their talent to increase the stock options they receive. Our results show that while the factors affecting disclosure and compensation are consistent with previous research, Australian CEOs do not use forecasts to signal their talent to increase compensation received.

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