The forward-looking disclosures of corporate managers: theory and evidence

  • We consider an infinitely repeated game in which a privately informed, long-lived manager raises funds from short-lived investors in order to finance a project. The manager can signal project quality to investors by making a (possibly costly) forward-looking disclosure about her project’s potential for success. We find that if the manager’s disclosures are costly, she will never release forward-looking statements that do not convey information to external investors. Furthermore, managers of firms that are transparent and face significant disclosure-related costs will refrain from forward-looking disclosures. In contrast, managers of opaque and profitable firms will follow a policy of accurate disclosures. To test our findings empirically, we devise an index that captures the quantity of forward-looking disclosures in public firms’ 10-K reports, and relate it to multiple firm characteristics. For opaque firms, our index is positively correlated with a firm’s profitability and financing needs. For transparent firms, there is only a weak relation between our index and firm fundamentals. Furthermore, the overall level of forward-looking disclosures declined significantly between 2001 and 2009, possibly as a result of the 2002 Sarbanes-Oxley Act.

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Metadaten
Author:Reint GroppGND, Rasa Karapandza, Julian Opferkuch
URN:urn:nbn:de:hebis:30:3-410424
URL:http://ssrn.com/abstract=2810202
DOI:https://doi.org/10.2139/ssrn.2810202
Parent Title (English):SAFE working paper series ; No. 140
Series (Serial Number):SAFE working paper series (140)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Date of Publication (online):2016/07/15
Date of first Publication:2016/07/15
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2016/07/19
Tag:Asymmetric Information; Firms; Repeated Games; Reputation
Page Number:47
HeBIS-PPN:386292493
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht