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

Arbeitspapier

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.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IWH Discussion Papers ; No. 25/2016

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Asymmetric and Private Information; Mechanism Design ; Corporate Finance and Governance: General ; Transactional Relationships; Contracts and Reputation; Networks
• Thema: repeated games ; asymmetric information ; firms ; reputation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Gropp, Reint E. ; Karapandza, Rasa ; Opferkuch, Julian
• Ereignis: Veröffentlichung
• (wer): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
• (wo): Halle (Saale)
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/144512
• URN: urn:nbn:de:gbv:3:2-59323
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ