The forward-looking disclosures of corporate managers : theory and evidence / Reint E. Gropp, Rasa Karapandza, Julian Opferkuch
VerfasserGropp, Reint ; Karapandža, Raša ; Opferkuch, Julian
ErschienenHalle (Saale), Germany : Halle Institute for Economic Research (IWH), July 2016
Umfang1 Online-Ressource (43 Seiten = 0,64 MB)
SerieIWH-Diskussionspapiere ; no. 2016/25
 Das Dokument ist frei verfügbar
The forward-looking disclosures of corporate managers [0.64 mb]

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.