Speaking of the short-term: disclosure horizon and managerial myopia
- 3.6k Downloads
We study conference calls as a voluntary disclosure channel and create a proxy for the time horizon that senior executives emphasize in their communications. We find that our measure of disclosure time horizon is associated with capital market pressures and executives’ short-term monetary incentives. Consistent with the language emphasized during conference calls partially capturing short-termism, we show that our proxy is associated with earnings and real activities management. Overall, the results show that the time horizon of conference call narratives can be informative about managers’ myopic behavior.
KeywordsShort-termism Managerial myopia Earnings management Real activities management Accounting performance
We are grateful to our editor Patricia Dechow for her guidance on how to improve the paper and to two anonymous reviewers for their very helpful comments. We thank Beth Blakenspoor (discussant), Mark Bradshaw, Brian Bushee, Jeremiah Green, Victoria Ivashina, Stephannie Larocque, Reuven Lehavy, Andrew Leone, Greg Miller, Krishna Palepu, Shiva Rajgopal, Cathy Schrand, Doug Skinner, Rodrigo Verdi, Franco Wong, and conference participants at the 2014 Review of Accounting Studies Conference, American Accounting Association Annual Meeting in Washington DC, the Financial Accounting and Reporting Section Mid-Year Meeting in San Diego CA, the Colorado Summer Accounting Research Conference, the DePaul University People & Money Research Symposium, the Harvard Business School Information, Markets and Organizations conference, the Temple University Accounting Conference, Wharton Accounting Seminar at the University of Pennsylvania, the 2013 Conference on Finance, Economics and Accounting at the University of Northern Carolina at Chapel Hill, and brownbag participants at Harvard Business School and the University of Southern California for their helpful comments. We are grateful for useful discussions with Catherine Abi-Habib, Conor Kehoe and Andrea Tricoli from Mc Kinsey & Company. We are grateful to David Solomon that shared his data on investor relations firms. James Zeitler provided excellent research assistance. George Serafeim acknowledges financial support from the Division of Faculty and Research Development of the Harvard Business School.
- Bozanic, Z., Roulstone, D. T., & Van Buskirk, A. (2013). Management earnings forecasts and forward-looking statements. Working Paper.Google Scholar
- Bushee, B. (1998). The influence of institutional investors on myopic R&D investment behavior. The Accounting Review, 73(3), 305–333.Google Scholar
- Bushee, B., Gow, I., & Taylor, D. (2014). Linguistic complexity in firm disclosures: Obfuscation or information? Working Paper, University of Pennsylvania.Google Scholar
- Cheng, M., Subramanyam, K.R., & Zhang, Y. (2014). Earnings guidance and managerial myopia. Working Paper. Google Scholar
- Donaldson, W. H. (2005). The new environment in corporate governance: Taking stock and looking ahead. In Speech at the Business Roundtable Forum on Corporate Governance. http://www.sec.gov/news/speech/spch050805whd.htm
- Edmans, A., Fang, V., & Lewellen, K. (2014). Equity vesting and managerial myopia. NBER Working Paper 19407. Google Scholar
- Levitt, A. (2000). Renewing the covenant with investors. In Speech at the Center of Law and Business, New York University, May 10. https://www.sec.gov/news/speech/spch370.htm.
- Li, F. (2010). Textual analysis of corporate disclosures: A survey of the literature. Journal of Accounting Literature, 29, 143–165.Google Scholar
- Li, F., Lundholm, R., & Minnis, M. (2013). A measure of competition based on 10-K filings. Journal of Accounting Research, 51(2), 399–436.Google Scholar
- Liebowitz, S. J., & Margolis, S. E. (1995). Path dependence, lock-in, and history. Journal of Law Economics and Organization, 11(1), 205–226.Google Scholar
- Loughran, T., & McDonald, B. (2011). When is a liability not a liability. Journal of Finance, 66, 35–65.Google Scholar
- Shleifer, A., & Vishny, R. W. (1990). Equilibrium short horizons of investors and firms. American Economic Review, 80(2), 148–154.Google Scholar