Managerial Discretion, Earnings Opacity, and Stock Price Informativeness
40 Pages Posted: 16 Jun 2022
Date Written: June 9, 2022
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