Optimistic Disclosure Tone and CEO Career Concerns

65 Pages Posted: 10 May 2018

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Cristina Grande-Herrera

City University London, Sir John Cass Business School, Faculty of Finance, Students

Encarna Guillamon Saorin

Universidad Carlos III de Madrid

Date Written: April 10, 2018

Abstract

We argue that CEOs use narrative disclosure tone to assuage career concerns. In particular, we predict that more talented CEOs use a more optimistic tone at the beginning of their tenures to build a reputation of strong performance ability. We run our tests on a large sample of US firms’ 10-K disclosures, and show that highly able CEOs use a more optimistic tone early in their careers. Our results are robust to a number of alternative specifications. Overall, our evidence indicates that optimistic tone is used by CEOs to signal their superior performance ability. Firms with more optimistic disclosures present higher value-weighted cumulative abnormal returns around last quarter earnings announcements, and are more likely to access future debt, engage in greater future capital investment and pay more future dividends.

Keywords: Narrative disclosure tone, CEO career concerns, CEO ability, Financial reporting quality

JEL Classification: M41, M49

Suggested Citation

Garcia Osma, Beatriz and Grande-Herrera, Cristina and Guillamon Saorin, Encarna, Optimistic Disclosure Tone and CEO Career Concerns (April 10, 2018). Available at SSRN: https://ssrn.com/abstract=3160100 or http://dx.doi.org/10.2139/ssrn.3160100

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Cristina Grande-Herrera (Contact Author)

City University London, Sir John Cass Business School, Faculty of Finance, Students ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 (0)20 7040 0297 (Phone)

Encarna Guillamon Saorin

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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