Investors' Evaluations of Strategic Prior-Period Benchmark Disclosures in Earnings Announcements
39 Pages Posted: 20 Nov 2001
Date Written: 02-28-03
I test causal explanations for recent archival evidence that suggests investors' judgments are influenced by managers' strategic disclosure of prior-period benchmarks in earnings announcements (Schrand and Walther 2000), and I provide ex ante evidence on disclosures that may assist investors. While my experiment provides convergent evidence of the influence of these disclosures in a controlled setting, it also provides new evidence that the differences in investors' evaluations are likely unintentional, resulting from memory limitations. Other key findings suggest that mandating the benchmark disclosures that managers normally avoid could help prevent investors from making overly-optimistic evaluations.
Keywords: performance benchmarks, reference points, earnings management, voluntary disclosure
JEL Classification: M41, M43, C91, G14, D83
Suggested Citation: Suggested Citation