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Does equity mispricing affect voluntary disclosure?

14 gennaio 2021 ore 18:00 - 19:30

Aula Luiss Research Seminars, Sede di Luiss

Speaker: Jonathan Berkovitch

Abstract

I investigate whether equity mispricing affects the frequency and tone of voluntary corporate disclosures. In periods of potential mispricing during mutual fund redemptions, managers have conflicting incentives: to provide value-relevant information about the firm in an attempt to correct the mispricing or to remain silent and exploit the mispricing for their own advantage. To capture the full extent of managers' disclosure behavior, I evaluate several forms of management communication including the number of forecasts issued and the number of Form 8-K filings with the SEC. To gain further insight into managers' intentions, I also consider the precision of the forecasts relative to the firm's past forecasts as well as to those made by competitor companies in the same quarter. The findings suggest that managers respond to mispricing by issuing an increased number of earnings forecasts and by providing more voluntary information in the 8-K filings. Further, the forecasts are more accurate and the overall tone of the information in the 8-K filings is more positive. The results vary cross-sectionally. Firms where the CEOs are more sensitive to share price movements, those with higher liquidity, and those experiencing relatively larger redemptions are more likely to have an increase in both the frequency and content of disclosures. Following the disclosures, on average firms experience subsequent stock price increases. These results are consistent with the notion that managers respond to equity mispricing by providing additional information that market participants take into account in their investment decisions