What Drives Voluntary Disclosure – Manager Cost or Investor Demand?: Evidence from Derivatives Use

54 Pages Posted: 12 Sep 2017 Last revised: 3 Aug 2018

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Sean Cao

Georgia State University - School of Accountancy

Hye Sun Chang

Singapore Management University - School of Accountancy

Raluca Chiorean

Lehigh University - Department of Accounting

Date Written: July 26, 2018

Abstract

This study examines how a significant day-to-day operating activity (i.e., risk management through the use of derivatives) affects managers’ disclosure decisions. Specifically, the derivatives setting provides insights to understand how managers respond to investor demand for disclosure depending on the cost of providing such disclosure. We provide several main findings. We find that managers are more likely to provide management forecasts after beginning the use of derivatives; however, such an increase in forecasts only occurs when derivatives use makes it easier to predict future performance and meet or beat future forecasts (i.e., when the managers’ personal cost to disclose is low). In fact, managers facing high investor demand for disclosure remain silent or even reduce the number of forecasts provided when their personal cost to disclose is high. We also find that these “low cost” forecasts provide no incremental information to analysts. On the other hand, while costly management forecasts have the potential to significantly improve analyst forecast accuracy, managers are reluctant to issue such forecasts. Overall, our results imply that – in deciding whether to provide voluntary disclosure – managers consider their own interests (i.e., their career and reputation concerns) before the interests of shareholders (i.e., meeting investor demand).

Keywords: voluntary disclosure, management forecasts, derivatives, hedge accounting

Suggested Citation

Campbell, John L. and Cao, Sean S. and Chang, Hye Sun and Chiorean, Raluca, What Drives Voluntary Disclosure – Manager Cost or Investor Demand?: Evidence from Derivatives Use (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3034651 or http://dx.doi.org/10.2139/ssrn.3034651

John L. Campbell (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706.542.3595 (Phone)
706.542.3630 (Fax)

Sean S. Cao

Georgia State University - School of Accountancy ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States

Hye Sun Chang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Raluca Chiorean

Lehigh University - Department of Accounting ( email )

United States

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