The Impact of New Zealand’s Statutory-Backed Continuous Disclosure Regime on Corporate Disclosure Behaviour

Abstract

Since 1 December 2002, the New Zealand Stock Exchange’s (NZX) continuous disclosure listing rules have operated with statutory backing. To test the effectiveness of the new corporate disclosure regime, we compare the change in quantity (frequency), quality (precision and accuracy), and timeliness (horizon) of earnings guidance in NZX disclosures before and after the introduction of statutory backing. Our results provide qualified support for the effectiveness of statutory sanctions. Disclosure frequency has significantly improved; however, a large number of material changes in periodic earnings are either not pre-empted by an earnings forecast or are only pre-empted by an earnings forecast made in conjunction with a routine announcement. In the post-statutory sanctions period, disclosure quality significantly improves in terms of forecast precision and accuracy but at the expense of a decline in forecast horizon, and many forecasts remain qualitative in nature. While these results suggest that the impact of regulatory reforms falls short of the continuous disclosure culture envisaged by New Zealand corporate regulators, the observed positive changes in managers’ forecasting behaviour have been achieved in the absence of strong enforcement action. These findings have important implications for corporate regulators in their search for a superior corporate disclosure regime.