Managerial Discretion, Earnings Opacity, and Stock Price Informativeness

40 Pages Posted: 16 Jun 2022

See all articles by James M. Carson

James M. Carson

University of Georgia

Cameron Ellis

University of Iowa

Elyas Elyasiani

Temple University - Department of Finance

Yuan Wen

State University of New York at New Paltz

Date Written: June 9, 2022

Abstract

Managerial, or discretionary, earnings opacity is the intentional lack of transparency to hide the intrinsic value of a firm. Opacity arises through two channels. The first is ex ante, when managers manipulate current expectations about future performance; and the second is ex post, when managers hoard negative news that corrects their initial estimates. Using insurance industry data and the 2015 FASB accounting standards update in a difference-in-differences framework, we investigate the relationship between discretionary opacity and stock price informativeness. We find that the 2015 FASB update increased informativeness through a reduction in delayed news release that reduced opacity.

Keywords: Earnings Quality, Discretionary Opacity, Stock Price Informativeness, News Hoarding, Information Asymmetry

JEL Classification: G22, G32

Suggested Citation

Carson, James M. and Ellis, Cameron and Elyasiani, Elyas and Wen, Yuan, Managerial Discretion, Earnings Opacity, and Stock Price Informativeness (June 9, 2022). Available at SSRN: https://ssrn.com/abstract=4132779 or http://dx.doi.org/10.2139/ssrn.4132779

James M. Carson

University of Georgia ( email )

Athens, GA 30602-6254
United States

Cameron Ellis (Contact Author)

University of Iowa ( email )

Tippie College of Business
21 E Market st
Iowa City, IA 52246
United States

Elyas Elyasiani

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Yuan Wen

State University of New York at New Paltz ( email )

1 Hawk Drive
600 Hawk Drive
New Paltz, NY 12561-2443
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
279
Rank
530,625
PlumX Metrics