The Role of Management Talent in the Production of Informative Regulatory Filings

Abstract

This study examines the extent to which managerial talent plays a role in shaping the clarity of regulated financial disclosures and a firm’s information environment. Consistent with the notion that clear thinking leads to clear writing, we find more able management teams produce clearer and more concise financial filings. Additional analyses provide evidence that the association is distinct from the impact of overall performance on clearer writing. Further, mediation (path) analyses reveal that talented management teams positively impact the post-filing information environment (i.e., lower analyst forecast errors and dispersion) through clearer writing. Lastly, we find that the positive influence of management talent on financial filing readability is decreasing in the management team’s insider selling incentives. Overall, this study highlights how an essential managerial characteristic, talent, shapes the informativeness of regulatory filings.

Keywords: managerial ability; managerial efficiency; financial statement readability; plain English

JEL Classification: M40