Managerial Discretion, Earnings Opacity, and Stock Price Informativeness

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: 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