Abstract

https://ssrn.com/abstract=2810202
 


 



The Forward-Looking Disclosures of Corporate Managers: Theory and Evidence


Reint Gropp


Halle Institute for Economic Research

Rasa Karapandza


EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Julian Opferkuch


Goethe University Frankfurt, Students

July 15, 2016

SAFE Working Paper No. 140

Abstract:     
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.

Number of Pages in PDF File: 47

Keywords: Repeated Games, Asymmetric Information, Firms, Reputation

JEL Classification: C73, D82, G30, L14


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Date posted: July 16, 2016  

Suggested Citation

Gropp, Reint and Karapandza, Rasa and Opferkuch, Julian, The Forward-Looking Disclosures of Corporate Managers: Theory and Evidence (July 15, 2016). SAFE Working Paper No. 140. Available at SSRN: https://ssrn.com/abstract=2810202 or http://dx.doi.org/10.2139/ssrn.2810202

Contact Information

Reint Gropp
Halle Institute for Economic Research ( email )
P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany
Rasa Karapandza
EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )
Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Julian Opferkuch (Contact Author)
Goethe University Frankfurt, Students ( email )
Frankfurt
Germany
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