Do managers alter the tone of their earnings announcements around stock option grants and exercises?

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dc.contributor.authorTama-Sweet, Isho, 1973-
dc.date.accessioned2010-03-05T00:32:47Z
dc.date.available2010-03-05T00:32:47Z
dc.date.issued2009-06
dc.descriptionix, 69 p. A print copy of this thesis is available through the UO Libraries. Search the library catalog for the location and call number.en_US
dc.description.abstractIn 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.en_US
dc.description.sponsorshipCommittee in charge: Steven Matsunaga, Chairperson, Accounting; Angela Davis, Member, Accounting; David Guenther, Member, Accounting; Jeremy Piger, Outside Member, Economicsen_US
dc.identifier.urihttps://hdl.handle.net/1794/10242
dc.language.isoen_USen_US
dc.publisherUniversity of Oregonen_US
dc.relation.ispartofseriesUniversity of Oregon theses, Dept. of Accounting, Ph. D., 2009;
dc.subjectDisclosureen_US
dc.subjectStock optionsen_US
dc.subjectToneen_US
dc.subjectPress releaseen_US
dc.subjectEarnings announcementsen_US
dc.subjectOptimismen_US
dc.subjectManagersen_US
dc.subjectAccountingen_US
dc.subjectManagementen_US
dc.subjectFinanceen_US
dc.titleDo managers alter the tone of their earnings announcements around stock option grants and exercises?en_US
dc.typeThesisen_US

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