Essay I: Sales Executives and Voluntary Disclosure

The role of subordinate managers in firms' financial reporting decision is of great interest but little-known in the literature. This paper focuses on the role of individual sales executives in voluntary disclosures because of the important role they play in the revenue recognition process. The findings show that controlling for both economic determinants and the effects of CEOs and CFOs, the fixed effect of Sales Executives is significant in explaining the decision to issue both earnings forecasts and revenue forecasts. Further evidence suggests that Sales Executives also affect properties of earnings forecast, e.g., forecast errors, forecast news and forecast precision. The fixed effect of sales executives in disclosure choice...[ Read more ]

Essay I: Sales Executives and Voluntary Disclosure

The role of subordinate managers in firms' financial reporting decision is of great interest but little-known in the literature. This paper focuses on the role of individual sales executives in voluntary disclosures because of the important role they play in the revenue recognition process. The findings show that controlling for both economic determinants and the effects of CEOs and CFOs, the fixed effect of Sales Executives is significant in explaining the decision to issue both earnings forecasts and revenue forecasts. Further evidence suggests that Sales Executives also affect properties of earnings forecast, e.g., forecast errors, forecast news and forecast precision. The fixed effect of sales executives in disclosure choices is related to their incentives, abilities, background and environment. In summary, the paper demonstrates the style of sales executives matters for voluntary disclosure. This unveils the nature of joint inputs of the executive team and the role of subordinate executives in financial disclosure choices.

Essay II: Information Asymmetry and Accounting Conservatism--Evidence from Exogenous Shock to Analyst Coverage

I examine how companies voluntarily change their financial reporting conservatism in response to an exogenous decrease in analyst coverage. I hypothesize that the greater information asymmetry and the reduced external monitoring associated with the decrease in analyst coverage exacerbates the potential agency problems between contracting parties, which in turn creates an increased demand for conservative accounting. Consistent with this prediction, I document a significant increase in accounting conservatism following an exogenous drop in analyst coverage. Furthermore, the effect is stronger when the dropped analyst is more informed, the number of existing analysts is smaller, and when the affected firm has greater needs for external financing, higher financial leverage ratio, unfavorable credit ratings, more cash compensation granted to CEOs and less managerial ownership. The evidence is consistent with the notion that accounting conservatism arises as part of the efficient technology employed by firms to address the information-asymmetry-driven agency problems.