Text

theses

ETD_8085

Ph.D.

Includes bibliographical references

by Jinglin Jiang

doi:10.7282/T3RJ4NJ0

ETD doctoral

The accounting literature has long recognized that maintaining or increasing stock prices isone of the most important factors for managers’ reporting and disclosure decisions, how-ever, the extant literature mainly examines the reverse causality (i.e., the effect of voluntaryearnings forecasts or earnings management on stock prices), due to endogeneity concerns.Chapter 1 examines managers’ decisions on information disclosure in response to stock-underpricing. Using mutual fund fire sales as an exogenous source of market-disruption,we find some managers increase frequency/precision of earnings guidance in response tostock-underpricing. Other managers, especially those in firms with poorer performanceand more short-term-oriented investors, engage in accrual-based earnings management.The passage of SOX, however, affects firms’ response to fire sales, with firms increasingtheir reliance on guidance as opposed to earnings management. The shift is associatedwith faster post-fire-sales price recovery, suggesting that enhancing information disclosurerather than information manipulation is effective in correcting stock-underpricing.

The SEC promulgated Regulation Fair Disclosure (Reg FD) to establish a “level play-ing field”for investors through prohibiting the use of selective disclosure. In Chapter 2, weuse Reg FD as a plausibly natural experiment to evaluate links between disclosure, privateinformation production, and real efficiency. We find that the rule has an adverse impact onprice informativeness, investment-to-price sensitivity, and firm valuewith stronger effectsfor firms with greater prior reliance on selective disclosure. Analyst forecast quality alsoappears to decline following the rule change. Interestingly, the impact of Reg FD on priceinformativeness and the sensitivity of investment-to-price diminishes over time, while the deterioration in analyst forecasts tends to persist. Collectively, the results highlight unin-tended consequences of Reg FD in inhibiting private information acquisition and, thereby,the informational feedback from stock prices to real decisions.

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