THESIS
2012
viii leave, 81 p. : ill. ; 30 cm
Abstract
Essay I: The Information of Range Forecast Boundaries
Abstract: This paper studies whether meeting or beating the upper and lower boundaries of
management range forecasts are signals of better future performance, and whether the market
uses this information to value firms. Drawing on Trueman (1986), we hypothesize that
meeting/beating their own earnings forecasts signals managers' capability to deliver the
performance as planned, therefore indicating management's potential to achieve better
performance in the future. Consistent with our prediction, we find that firms meeting or beating
either boundary of range forecasts have significantly better future performance when other
factors are controlled. Moreover, firms meeting or beating the upper bound have better future
performa...[
Read more ]
Essay I: The Information of Range Forecast Boundaries
Abstract: This paper studies whether meeting or beating the upper and lower boundaries of
management range forecasts are signals of better future performance, and whether the market
uses this information to value firms. Drawing on Trueman (1986), we hypothesize that
meeting/beating their own earnings forecasts signals managers' capability to deliver the
performance as planned, therefore indicating management's potential to achieve better
performance in the future. Consistent with our prediction, we find that firms meeting or beating
either boundary of range forecasts have significantly better future performance when other
factors are controlled. Moreover, firms meeting or beating the upper bound have better future
performance than those merely meeting or beating the lower bound. We further find that the
market anticipates management's capabilities in meeting or beating the lower bound following
the issuance of management forecasts, but that it cannot predict whether firms can meet or beat
the upper bound until the earnings announcement. As a result, we find a premium on earnings
announcement date for firms meeting or beating the upper bound but not for firms merely
meeting or beating the lower bound. Overall, the findings suggest that 1) range forecast
boundaries are informative earnings benchmarks of future performance, as beating/meeting their
own forecasts signals managers’ ability to managing the business; 2) meeting or beating upper
bound is a better indicator of future performance than the lower bound, since upper bound is a
tougher target for the management to beat; and 3) the market fully anticipates and prices
managers' capability to meet/ beat the lower bound before earnings announcement but prices the
information of meeting/beating upper bound on earnings announcement date.
Essay II: Disclosing Executive Information in an Annual Report: Determinants and
Consequences
Abstract: Although compensation is paid in a monetary format, executives are motivated in a
variety of ways beyond monetary compensation. In this paper, we investigate one such
mechanism: disclosing executive information in annual report. We hypothesize that disclosing
executive information in annual report provides incentives for executives to maximize
shareholder value and we examine whether a higher level of executive information disclosure in
annual report is associated with lower level of explicit compensation-related incentives. We find
that explicit incentives, measured by the change in dollar value of the top five executives’ stocks
and options for a 1% change in the firm’s stock price, are lower among firms with greater executive information disclosure in annual report. Further tests reveal the negative association
between explicit incentives and such disclosure to be weaker when a firm’s performance or
information environment is good. We also find firms with more independent directors on the
board to be more likely to disclose executive information in annual report. Disclosing executive
information in annual report is an efficient scheme to motivate executives in terms of saving
monetary costs. Therefore, our result is consistent with previous findings that more independent
boards are more likely to adopt efficient incentive schemes.
Post a Comment