Institutional Dual-Holders and Managers' Earnings Disclosure

2021 ◽  
Author(s):  
Leila Peyravan ◽  
Regina Wittenberg-Moerman
Keyword(s):  
Adverse Effect ◽  
Commercial Bank ◽  
Private Information ◽  
Voluntary Disclosure ◽  
Information Environment ◽  
Earnings Forecast ◽  
Excess Returns ◽  
Lending Relationships ◽  
Playing Field ◽  
Information Advantage

We investigate how institutional (non-commercial bank) investors that simultaneously invest in a firm's debt and equity (dual-holders) influence the firm's voluntary disclosure. Because institutional dual-holders trade on private information gleaned through lending relationships, we predict and find that borrowers increase earnings forecast disclosure to reduce these investors' information advantage following the origination of loans with their participation. We also show that the increase in disclosure is stronger when the access to a borrower's private information endows dual-holders with a greater information advantage and when the consequences of this access are likely to be more pronounced. We further find that institutional dual-holders earn excess returns when trading equity of non-guider firms following loan origination, but not when firms issue guidance, confirming that earnings disclosure helps level the playing field among investors. Our findings highlight that firms actively use disclosure to mitigate the adverse effect of dual-holders on their information environment.

Analysts' Information Acquisition and Stock Price Synchronicity: A Regulatory Perspective from China

2018 ◽  
Vol 33 (1) ◽  
pp. 153-179 ◽  
Author(s):  
Haiyan Jiang ◽  
Donghua Zhou ◽  
Joseph H. Zhang
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Prices ◽  
Information Acquisition ◽  
Stock Price ◽  
Specific Information ◽  
Stock Price Synchronicity ◽  
Playing Field ◽  
Information Advantage ◽  
Private Information Acquisition

SYNOPSIS Against the backdrop of the Chinese Directive 40 (China's Reg FD) issued in 2007 as an attempt to curb insider trading and to level the information playing field, this study investigates whether analysts' private information acquisition influences the extent to which firm-specific information is impounded into stock prices, i.e., stock price synchronicity, and how the restrictions on selective disclosures imposed by Directive 40 have shaped the relationship between analyst information acquisition and synchronicity. Using a pre-Directive 40 sample, we show that synchronicity is negatively related to analysts' private information acquisition, which provides support for the “information advantage” argument of analysts' information production. However, the ability of analysts' private information acquisition in improving firm-specific information incorporated into stock price is mitigated post-Directive 40 due to a restriction on selective disclosures and/or private communication. Moreover, we find that this regulatory impact varies for firms being followed by affiliated analysts versus non-affiliated analysts. JEL Classifications: G14; G15; G17; G18.

Lenders' Experience with Borrowers' Major Customers and the Debt Contracting Demand for Accounting Conservatism

2018 ◽  
Vol 93 (5) ◽  
pp. 187-222 ◽  
Author(s):  
Guojin Gong ◽  
Shuqing Luo
Keyword(s):  
Supply Chain ◽  
Private Information ◽  
Financial Statements ◽  
Accounting Conservatism ◽  
Financial Risks ◽  
Latent Factors ◽  
Debt Contracting ◽  
Lending Relationships ◽  
Precise Evaluation ◽  
Information Advantage

ABSTRACT Lenders often have lending relationships with borrowers' major customers (labeled as “supply-chain lenders”). We hypothesize that private information obtained from borrowers' major customers can facilitate more timely and precise evaluation of borrowers' creditworthiness; this potentially reduces supply-chain lenders' reliance on accounting conservatism in debt contracting. Consistently, we find that suppliers borrowing from supply-chain lenders provide less conservative financial statements than suppliers borrowing from non-supply-chain lenders at loan origination. This finding is more pronounced when supply-chain lenders are likely to have greater information advantage over non-supply-chain lenders. Based on latent factors that proxy for private information accessible from customers, we find that supply-chain lenders' information advantage relates to customers' future operational and financial risks. Further, in lending agreements, supply-chain lenders accept fewer accounting-based contractual terms, lower spreads, and longer loan maturity than non-supply-chain lenders. The overall evidence suggests that borrowers' major customers represent an important information channel that enables lenders to more effectively screen and monitor borrowers, thus weakening the debt contracting demand for accounting conservatism.

Do Managers Disclose or Withhold Bad News? Evidence from Short Interest

2018 ◽  
Vol 94 (3) ◽  
pp. 1-26 ◽  
Author(s):  
Dichu Bao ◽  
Yongtae Kim ◽  
G. Mujtaba Mian ◽  
Lixin (Nancy) Su
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Data Availability ◽  
Bad News ◽  
General Tendency ◽  
Litigation Risk ◽  
Novel Approach ◽  
Conflicting Evidence ◽  
Short Interest

ABSTRACT Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers' private bad news (residual short interest) and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news. Data Availability: Data used in this study are available from public sources identified in the study.

Delegating Disclosure and Production Choices

2014 ◽  
Vol 90 (3) ◽  
pp. 835-857 ◽  
Author(s):  
Mark Bagnoli ◽  
Susan G. Watts
Keyword(s):  
Product Differentiation ◽  
Voluntary Disclosure ◽  
Information Environment ◽  
Firm Characteristics ◽  
Ex Ante ◽  
Firm Owners

ABSTRACT We study how joint delegation of production and disclosure choices alters the incentives that firm owners offer to their managers. Our first set of results shows how the incentive weights that owners place on revenues are affected by firm characteristics and by whether their manager chooses ex ante voluntary disclosure. This arises because the owners choose how sensitive the manager's compensation is to her production choice and, because this sensitivity is naturally greater if the manager opts to disclose, owners substitute disclosure for direct contractual incentives. Owners also substitute a rival firm's disclosures for direct incentives. Finally, we show that joint delegation alters the information environment for competing firms by creating incentives to provide more information about the less aggressive competitor and less information about the more aggressive competitor. All of these effects are exacerbated in industries with less product differentiation.

Information Externalities of SFAS 161: Evidence from Supply Chains

2020 ◽  
Author(s):  
Jing Chen ◽  
Yiwei Dou ◽  
Youli Zou
Keyword(s):  
Supply Chains ◽  
Voluntary Disclosure ◽  
Information Environment ◽  
Short Term ◽  
Positive Information ◽  
Stock Liquidity ◽  
Disclosure Policy ◽  
One Year

Effective in 2009, SFAS 161 requires enhanced disclosures about derivative use and hedging activities. We test for changes to the information environment of firms whose disclosure policy is unaffected by this standard directly. Using a sample of non-users of derivatives, we find an increase in stock liquidity after their critical customers expand derivative disclosures under SFAS 161. The effect persists for one year and becomes insignificant in subsequent years as the firms dial back their voluntary disclosure. The effect is also more salient for firms that have stronger economic links with their customers and for firms whose customers exhibit more significant improvements in derivative disclosures. The findings suggest that the mandatory derivative disclosures due to SFAS 161 lead to short-term positive information externalities along supply chains.

scholarly journals Commercial Banks’ Attributes and Annual Voluntary Disclosure: The case of Libya

2016 ◽  
Vol 5 (2) ◽  
pp. 208 ◽  
Author(s):  
Abdallah Al-mahdy Hawashe
Keyword(s):  
Regression Analysis ◽  
Empirical Study ◽  
Regression Model ◽  
Commercial Bank ◽  
Commercial Banks ◽  
Voluntary Disclosure ◽  
Ordinary Least Squares ◽  
Annual Reports ◽  
Government Ownership ◽  
Insight Into

AbstractThis study aims to investigateempirically whether there is any significant association between seven commercial bank-specific attributes (i.e. age of bank, size of bank, bank liquidity position, profitability, government ownership, foreign ownership, and listing status) and the extent of voluntary disclosure in the annual reports. Ordinary Least Squares (OLS) regression model is used to test the association between bank attributes and voluntary disclosure. The results of regression analysis indicate that banks size and listing status are significantly associated with the level of voluntary information disclosures. The findings also revealed the extent of voluntary disclosure in annual reports is notsignificantly influenced by other bank’s attributes.The current empirical study contributes to that investigation in the context of banking companies andprovides new insight into determinants of voluntary disclosure in the annual reports of listed and unlisted commercial banks.Keywords: Commercial Bank Attributes; Voluntary Disclosure;Annual reports; Libya

Costly Voluntary Disclosure in a Signaling Game

2019 ◽  
Vol 15 (2) ◽  
Author(s):  
Paul Pecorino ◽  
Mark Van Boening
Keyword(s):  
Private Information ◽  
Experimental Analysis ◽  
Voluntary Disclosure ◽  
Signaling Game ◽  
Strong Case

Abstract We conduct an experimental analysis of pretrial bargaining, while allowing for the costly disclosure of private information in a signaling game. Under the theory, 100 % of plaintiffs with a weak case are predicted to remain silent, while 100 % of the plaintiffs with a strong case are predicted to voluntarily disclose their type. We find that 75 % of weak plaintiffs remain silent and 67 % of strong plaintiffs reveal their type. In line with theory, weak plaintiffs who reveal their type receive a lower payoff, while strong plaintiffs who reveal their type receive a higher payoff. Plaintiffs with a strong case who reveal their type have a dispute rate which is 50 % points lower than strong plaintiffs who remain silent. Because plaintiffs who reveal their type cannot extract the entire surplus from settlement from the defendant, the incentive to engage in voluntary disclosure is weaker empirically than it is in theory.

scholarly journals S&P 500 Index Revisions And Analyst Coverage

2013 ◽  
Vol 29 (4) ◽  
pp. 1199 ◽  
Author(s):  
Qin Wang ◽  
Hei Wai Lee ◽  
Vivek Singh
Keyword(s):  
Information Environment ◽  
Earnings Forecast ◽  
Sample Period ◽  
Supportive Evidence ◽  
Forecast Dispersion ◽  
Analyst Coverage ◽  
The Impact

This paper examines theimpacts of revisions in the composition of the S&P 500 Index on theinformation environment of sample firms being added to or deleted from theIndex. We use the intensity (number of analysts and number of earningsestimates) and the quality (earnings forecast dispersion and accuracy) ofanalyst coverage to measure the information environment of sample firms. Wefind that firms that are added to the Index experienced significant increase inanalyst coverage while those deleted from the Index suffered reduction inanalyst coverage following the revision in the S&P 500 Index. The findingson the quality of analyst coverage also provide supportive evidence. There are increases in earnings forecastdispersion for both added and deleted firms, and improvements in forecastaccuracy for sample firms. In addition, further findings indicate a negativecorrelation between the impact of index revision on the information environmentand the intensity of pre-revision analyst coverage on the sample firms. Overall,our results suggest that index revisions have material impacts on the informationenvironment of sample firms that were added to, or deleted from, the S&P500 Index over the sample period of 1990 2007.

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