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Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring

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  • ANDRES ALMAZAN
  • SANJAY BANERJI
  • ADOLFO DE MOTTA

Abstract

We provide a theory of informal communication-cheap talk-between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders. The analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market's attention when the firm is substantially undervalued can create shareholder value. The theory also relates the credibility of managerial announcements to the use of stock-based compensation, the presence of informed trading, and the liquidity of the stock. Our results are consistent with the existence of positive announcement effects produced by apparently innocuous corporate events (e.g., stock dividends, name changes). Copyright (c) 2008 by The American Finance Association.

Suggested Citation

  • Andres Almazan & Sanjay Banerji & Adolfo De Motta, 2008. "Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring," Journal of Finance, American Finance Association, vol. 63(3), pages 1399-1436, June.
  • Handle: RePEc:bla:jfinan:v:63:y:2008:i:3:p:1399-1436
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    Cited by:

    1. Mamatzakis, Emmanuel & Zhang, Xiaoxiang & Wang, Chaoke, 2016. "Invisible hand discipline from informed trading: Does market discipline from trading affect bank capital structure?," MPRA Paper 76215, University Library of Munich, Germany.
    2. Daniel Ferreira & Gustavo Manso & André C. Silva, 2014. "Incentives to Innovate and the Decision to Go Public or Private," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 256-300, January.
    3. Ferreira, Daniel & Ferreira, Miguel A. & Raposo, Clara C., 2011. "Board structure and price informativeness," Journal of Financial Economics, Elsevier, vol. 99(3), pages 523-545, March.
    4. Park, Na Young, 2016. "Domain-specific risk preference and cognitive ability," Economics Letters, Elsevier, vol. 141(C), pages 1-4.
    5. Vollmer, Hendrik, 2016. "Financial numbers as signs and signals: Looking back and moving forward," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 17(2), pages 32-38.
    6. Karapandza, Rasa, 2016. "Stock returns and future tense language in 10-K reports," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 50-61.
    7. repec:bla:stratm:v:37:y:2016:i:12:p:2413-2424 is not listed on IDEAS
    8. Lin, Ji-Chai & Stephens, Clifford P. & Wu, YiLin, 2014. "Limited attention, share repurchases, and takeover risk," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 283-301.

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