Research Summary
Research Summary
Effective Capital Market Communications
Description
Hutton's most recent research and cases examine how managers enhance the credibility and effectiveness of their financial reports and voluntary disclosures. Her most recent working paper, "Effective Voluntary Disclosure" (co-authored with Greg Miller, HBS, and Douglas Skinner, University of Michigan) examines how the detailed disclosures and explanations accompanying managers' earnings forecasts affect the information content of these forecasts, measured by their impact on stock prices and analysts' forecast revisions. The goal of this research is to assist managers in understanding how to effectively manage capital market expectations. Hutton, Miller and Skinner find that management earnings forecasts accompanied by forecasts of sales, margins, and / or long-term growth rates are the most effective at changing capital market expectations and firm valuation. The three authors argue that these supplemental disclosures enhance the effectiveness of management earnings forecasts because they are precisely the inputs financial analysts and investors require for their valuation models. In addition, such disclosures add to the specificity of management's forecasts and thus enhance the credibility of these forecasts.