CEO Career Concerns, Optimism and Accuracy in Disclosure Tone

51 Pages Posted: 10 May 2018 Last revised: 17 Mar 2022

See all articles by Andrea Bafundi

Andrea Bafundi

Universidad Carlos III Madrid

Beatriz Garcia Osma

Universidad Carlos III de Madrid ; European Corporate Governance Institute (ECGI)

Cristina Grande-Herrera

Comillas Pontifical University - Faculty of Economics and Business Administration

Encarna Guillamon Saorin

Universidad Carlos III de Madrid

Date Written: March 12, 2022

Abstract

We argue that CEOs manage narrative disclosure tone in response to career concerns. Using a large sample of US firms’ 10-K disclosures, we find that managers use less optimistic tone in their early career years. Our evidence also indicates that CEOs appear to use optimistic tone to signal their performance ability. We find that highly able CEOs use a more optimistic tone in their early career years, and that this tone accurately reflects their superior future performance. Career concerns influence tone in settings where boards are independent, the CEO is not the chairman of the board, and managerial compensation packages offer less severance pay. Firms with optimistic disclosures are more likely to access future debt, engage in greater future capital investment, and pay more future dividends. This is particularly true in firms where ex post performance is strong. Our results suggest that disclosure strategies are connected to managerial human capital and to CEO performance assessment concerns.

Keywords: CEO career concerns, CEO ability, Optimistic disclosure tone, CEO assessment, 10-K disclosures, Narrative disclosure, CEO turnover

JEL Classification: M12, M41, M49

Suggested Citation

Bafundi, Andrea and Garcia Osma, Beatriz and Grande-Herrera, Cristina and Guillamon Saorin, Encarna, CEO Career Concerns, Optimism and Accuracy in Disclosure Tone (March 12, 2022). Available at SSRN: https://ssrn.com/abstract=3160100 or http://dx.doi.org/10.2139/ssrn.3160100

Andrea Bafundi

Universidad Carlos III Madrid ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Beatriz Garcia Osma

Universidad Carlos III de Madrid ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Cristina Grande-Herrera (Contact Author)

Comillas Pontifical University - Faculty of Economics and Business Administration ( email )

Spain

Encarna Guillamon Saorin

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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