The Use of Revenue Disclosures to Inform and Influence the Market

This study addresses whether firms use revenue disclosures to inform and influence the market. We construct a revenue disclosure index of how many commonly discussed revenue related topics are included in each firm's 10-K filing. As expected, we find that revenue disclosure is associated with various determinants of corporate disclosure, and it is negatively associated with absolute earnings forecast errors and cost of equity capital. Regarding revenue specific outcomes, revenue disclosure is associated with a greater likelihood of having a revenue forecast, smaller revenue forecast errors, and a greater weight on revenues in valuation. These results suggest that revenue disclosures provide valuable information to the market about future revenues and influence the market to place a greater weight on revenue in valuation.