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Does managerial ability affect disclosure? Evidence from earnings press releases

Author

Listed:
  • Yan, Beibei
  • Arslan-Ayaydin, Özgür
  • Thewissen, James

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Torsin, Wouter

Abstract

Using a sample of about 24,000 earnings press releases by S&P1500 firms between 2004 and 2013, we find that low-ability managers inflate the disclosure tone to positively influence labor market's perceptions about their ability. This effect is magnified for younger and shorter-tenured managers, for firms with more intense monitoring and during bear markets. We also show that the tone of earnings press releases of low-ability managers is less informative to predict future firm performance and results in a lower stock price reaction. Overall, our findings confirm that managerial ability affects the credibility of qualitative information.

Suggested Citation

  • Yan, Beibei & Arslan-Ayaydin, Özgür & Thewissen, James & Torsin, Wouter, 2021. "Does managerial ability affect disclosure? Evidence from earnings press releases," LIDAM Reprints LFIN 2021006, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2021006
    DOI: https://doi.org/10.1108/ARA-03-2020-0036
    Note: In: Asian Review of Accounting, 2021, vol. 29(2), p. 192-226
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    Cited by:

    1. Westfall, Tiffany J. & Myring, Mark, 2022. "Are voluntary internal control weakness disclosures in initial public offerings associated with managerial ability and subsequent financial reporting quality?," Advances in accounting, Elsevier, vol. 59(C).
    2. Özgür, Arslan-Ayaydin & Thewissen, James & Torsin, Wouter, 2021. "Earnings Management Methods and CEO Political Affiliation," LIDAM Discussion Papers LFIN 2021017, Université catholique de Louvain, Louvain Finance (LFIN).
    3. Sharad Asthana & Rachana Kalelkar, 2023. "Effect of geomagnetic activity on investors and managers: evidence from the pricing and timing of disclosure of earnings news," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 31(3), pages 387-413, February.

    More about this item

    Keywords

    Managerial ability; Tone management; Tone informativeness; Career concerns; Earnings press releases;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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