The joint effects of materiality thresholds and voluntary disclosure incentives on firms’ disclosure decisions

Heitzman, Shane; Wasley, Charles E.; Zimmerman, Jerold L.

doi:10.1016/j.jacceco.2009.10.002

Cited by 168 publications

(36 citation statements)

References 80 publications

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“…5 Although earnings press releases are subject to the antifraud provisions of the federal securities laws and may not mislead or omit material information, there are no requirements for mandatory disclosure of all material line items in an earnings press release. Consequently, our predictions regarding disclosure of specific line items are not merely due to any mandatory disclosure requirements (see Heitzman et al 2008). 6 Except for the balance sheet claims factor, the rest of the factors are consistent with natural aggregation suggested by financial statement analysis.…”

Section: Introductionsupporting

confidence: 80%

Disclosure of GAAP line items in earnings announcements

2009

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We provide new evidence on the disclosure in earnings announcements of financial statement line items prepared under Generally Accepted Accounting Principles (GAAP). First, we investigate the circumstances that might provide disincentives generally for GAAP line item disclosures. We find that managers who regularly intervene in the earnings reporting process limit disclosures at the aggregate level and in each of the financial statements so as to more effectively guide investor attention to summary financial information. Specifically, this disclosure behavior obtains when managers habitually cater to market expectations, engage in income smoothing, or use discretionary accruals to improve earnings informativeness. Second, we predict and find that the specific GAAP line items that firms choose to disclose are determined by the differential informational demands of their economic environment, consistent with incentives to facilitate investor valuation. However, these valuation-related disclosure incentives are muted when managers habitually intervene in the earnings reporting process.

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Section: Introductionsupporting

confidence: 80%

Disclosure of GAAP line items in earnings announcements

2009

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“…Some authors find that managers are more likely to provide forecasts when their firms' underlying earnings performance is strong (e.g., Patell, 1976;Penman, 1980;Lev and Penman, 1990;Miller, 2002) while other authors find that there is also a ARTICLE IN PRESS 4 We acknowledge that most disclosures are not literally voluntary, in the sense that economic forces are likely to compel managers' disclosures (Heitzman et al, 2008) but use the term to refer to non-mandated disclosures (i.e., disclosures other than those required on a regular basis by the securities laws). For example, the evidence in Noe (1999), Cheng andLo (2006), Billings (2008), and Rogers (2008) shows that managers' disclosure decisions are sometimes made in conjunction with their own trading decisions to enhance the profitability of those trades, subject to constraints imposed by the securities laws.…”

Section: Regular Versus Sporadic Forecastsmentioning

confidence: 85%

Earnings guidance and market uncertainty

Rogers

Skinner

Buskirk

2009

Journal of Accounting and Economics

275

195

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“…However, as Heitzman et al (2010) discuss, an observed negative association between disclosure and the cost of capital could be mechanical. In particular, firms with high costs of capital have lower earnings response coefficients.…”

Section: Cost Of Capitalmentioning

confidence: 96%

“…While the literature has interpreted the AIMR rankings and other self-constructed indices of disclosure as representing voluntary disclosures, these measures capture both voluntary and mandatory material disclosures (see Heitzman et al (2010) for a detailed discussion). Thus, it is unclear whether the association between disclosures and liquidity is attributable to voluntary or mandatory disclosures, or some interaction of the two.…”

Section: Motives For Voluntarily Disclosures and Financial Reporting mentioning

confidence: 99%