Strategic Formatting in Firm Disclosures

Abstract

Prior research finds that qualitative features of disclosures can have important effects on investor judgments. We extend this research by examining how preparers’ disclosure formatting choices vary in response to firm incentives. Using an experiment, we manipulate firm performance and capital market pressure, and observe experienced IROs’ decisions regarding (1) how financial information will be presented, (2) whether certain information will be emphasized, and (3) where financial information will be located. To operationalize these formatting choices, we examine their use of tables, bulleted lists, and headlines within an earnings announcement, each of which alters the salience of firm performance information. We find that preparers make formatting choices that highlight positive performance information and deemphasize negative performance information, and supplemental analyses corroborate their intention to use certain qualitative disclosure features to strategically alter the salience of firm performance information.

Keywords: earnings announcements; qualitative disclosure features; disclosure format; investor relations officers

JEL Classification: M41, M48, M49