Do Skillful Management Teams Disclose More Financial Statement Disaggregation?

Abstract

We show that firms with a skillful management team tend to disclose more accounting information than other comparable firms. We explore several channels to explain this finding. First, we find that investors treat the disclosure of skillful management team as more credible. In particular, investors react more (less) significantly to earning announcements of skillful (other) management teams. Second, we find that a higher disclosure quality helps skillful management teams earn higher total compensation. In addition, this effect also reduces the corporate’s crash risk and becomes stronger in the sample of higher takeover probability or information asymmetry. Together, our study provides a very first evidence on how managerial skill determines a firm’s disclosure policy.

Keywords: Disclosure quality, managerial skill, earning announcements, total compensation, takeover probability

JEL Classification: G14, G34, M41