Management Risk Incentives and the Readability of Corporate Disclosures

Financial Management, Forthcoming

54 Pages Posted: 9 Feb 2014 Last revised: 2 Jan 2018

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Ananth Seetharaman

Saint Louis University - Department of Accounting

Zane L. Swanson

University of Central Oklahoma

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Date Written: November 12, 2017

Abstract

Managers with higher risk incentives (greater options vega) issue less readable disclosures. Those in the top-quartile of vega file annual reports that are about 15.4% more voluminous than the filings of bottom-quartile-vega managers. The effect of vega on obfuscation remains after controlling for firm risk, operating complexities, accounting and auditor choices, CEO changes, and an exogenous shock to option compensation. This effect is tempered by higher institutional ownership, lower management entrenchment, and greater analyst following. Obfuscation benefits managers by increasing return volatility (option value) and allowing greater earnings management. These findings uncover a new link between options and disclosure transparency.

Keywords: Executive Compensation; Disclosure Obfuscation; Option Vega; Textual Analysis

JEL Classification: G12, G14, G30, M4, M52

Suggested Citation

Chakrabarty, Bidisha and Seetharaman, Ananth and Swanson, Zane L. and Wang, Xu (Frank), Management Risk Incentives and the Readability of Corporate Disclosures (November 12, 2017). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2392632 or http://dx.doi.org/10.2139/ssrn.2392632

Bidisha Chakrabarty (Contact Author)

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Ananth Seetharaman

Saint Louis University - Department of Accounting ( email )

3674 Lindell Blvd.
St. Louis, MO 63108
United States
314-977-2473 (Phone)
314-977-1473 (Fax)

Zane L. Swanson

University of Central Oklahoma ( email )

100 North University Drive
Edmond, OK 73034
United States

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
274
Abstract Views
1,439
rank
123,459
PlumX Metrics