Accounting Theses and Dissertations
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Browsing Accounting Theses and Dissertations by Subject "Disclosure"
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Item Open Access Do managers alter the tone of their earnings announcements around stock option grants and exercises?(University of Oregon, 2009-06) Tama-Sweet, Isho, 1973-In this dissertation I investigate whether managers alter the linguistic tone of their earnings announcements to increase the value of their stock options. Empirical research finds evidence that managers use optimistic tone to signal future firm performance. However, prior literature also finds a positive relation between optimistic tone in earnings announcements and short-window abnormal returns. The market reaction to optimistic tone suggests that managers can profit from using pessimistic tone to lower the firm's stock price prior to option grants and optimistic tone to increase the stock price prior to option exercises. I hypothesize that managers adjust the tone of their earnings announcements to increase the value of their stock options. In addition, I hypothesize that managers will alter the tone to increase option payouts when the costs of doing so (proxied by litigation risk) are low and when the financial reporting incentives to do so (proxied by earnings management) are high. I test these predictions using 17,211 firm-quarter observations from 1998-2006. In my tests I regress the tone of the earnings announcement on its known determinants and indicators for a stock option grant or exercise shortly following the announcement. I do not find evidence that managers, on average, alter the tone of earnings announcements prior to option grants or exercises. However, I find that managers decrease optimistic tone prior to option grants when they also record low discretionary accruals, which suggests that altering tone and managing earnings are complementary strategies to move stock price. I also find that managers increase optimistic tone prior to option exercises when litigation risk is low, but decrease optimistic tone prior to option exercises when litigation risk is high. Further analysis indicates the litigation risk results hold only after the Sarbanes-Oxley Act of 2002. Overall, my evidence suggests that managers increase optimistic tone prior to option exercises except when a high threat of litigation constrains such opportunism. When managers do alter tone, the average financial gain is small relative to their total compensation.Item Open Access The Information Content of Risk Factor Disclosures in Quarterly Reports(University of Oregon, 2011-06) Filzen, Joshua James, 1981-I examine whether recently required Risk Factor update disclosures in quarterly reports provide investors with timely information regarding potential future negative outcomes. Specifically, I examine whether Risk Factor updates in 10-Q filings are associated with negative abnormal returns at the time the updates are disclosed and whether quarterly updates are followed by negative earnings shocks. I find that firms presenting updates to their Risk Factor disclosures have lower abnormal returns around the filing date of the 10-Q relative to firms without updates, although I find little evidence to suggest that the strength of this relationship is positively associated with the level of information asymmetry between managers and investors. Using analyst forecasts and a cross-sectional model to forecast earnings as measures of expected earnings prior to the release of Risk Factor updates, I find that firms with updates to their Risk Factors section have lower future unexpected earnings. I also find that firms with Risk Factor updates are more likely to experience future extreme negative earnings forecast errors. These findings suggest that the recent disclosure requirement mandated by the SEC was successful in generating timely disclosure of bad news. However, I also find some evidence that firms with updates to their Risk Factors section have stronger future positive performance shocks relative to firms without Risk Factor Updates, consistent with firms that disclose Risk Factor updates also having greater upside potential.