Information Bias and Disclosure
40 Pages Posted: 31 May 2019
Date Written: April 4, 2019
We examine the impact of biases in managerial judgment and in accounting reports on the disclosure of unverifiable private managerial information for stewardship purposes. We show that any biased managerial judgment in interpreting private information, and negatively biased accounting (conservatism), reduce timely disclosure of private managerial information by firms. Only positively biased (less conservative) accounting increases such disclosure by firms. Contrary to conventional wisdom, negative accounting biases, instead of counteracting positive managerial bias, act to further reduce disclosure, and thus the supply of timely infor-mation to capital markets. Consequently, we find that freedom from bias, both in managerial judgment and in accounting, more likely results in firms making timely disclosures.
Keywords: managerial bias, accounting bias, disclosure,neutrality, communica-tion, unverifiable managerial information, confirmatory role
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