Management Deception, Big-Bath Accounting, and Information Asymmetry: Evidence from Linguistic Analysis

64 Pages Posted: 16 Jul 2017 Last revised: 27 Feb 2018

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Jingjing Wang

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2018

Abstract

Accounting big baths are pervasive in practice. While big baths can improve the information environment and reduce information asymmetry, they can also degrade the information environment and obscure operating performance. In this study, we examine the role of management ethics. Specifically, we investigate whether managers’ truthfulness (or conversely, deceptiveness) affects how investors perceive big baths. Using linguistic analysis on earnings-conference calls to measure managerial deception and employing a difference-in-differences research design with propensity-score matching, we find that information asymmetry is significantly higher following big baths taken by deceptive CEOs, compared with big baths taken by less deceptive CEOs.

Keywords: Management Deception, Big-Bath Accounting, Linguistic Analysis, Information Asymmetry

JEL Classification: G30, M10, M40, M41

Suggested Citation

Hope, Ole-Kristian and Wang, Jingjing, Management Deception, Big-Bath Accounting, and Information Asymmetry: Evidence from Linguistic Analysis (February 26, 2018). Available at SSRN: https://ssrn.com/abstract=3003259 or http://dx.doi.org/10.2139/ssrn.3003259

Ole-Kristian Hope

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Jingjing Wang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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