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To delegate or not to delegate? On the quality of voluntary corporate financial disclosure

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Abstract

This study investigates the impact of delegation structure of the top management team upon the corporate voluntary disclosure on financial outcomes. The paper develops two competing hypotheses pertaining to the relationship between the degree of delegation and the quality of management earnings forecasts (MFs), the most influential type of voluntary financial disclosure. In support of the literature on strategic information transmission, the empirical findings demonstrate a U-shaped relationship between the degree of delegation and the quality of MFs, suggesting that an internal optimality of responsibility sharing between the CEO and her immediate subordinates does not exist for internal information production and dissemination. Specifically, the paper analyzes four aspects of MFs, and the documented curvilinear forms are generally persistent across the multiple quality metrics. Consistent with the literature on aging executives, the curvilinear relation is more significant when the top management team is led by an older CEO. The paper utilizes a system of structural equations to ameliorate estimation biases and the results are robust to a battery of robustness checks.

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Notes

  1. For details of the method please refer to the Appendix in Brick et al. (2019).

  2. I use MEAN_AT_DATE from I/B/E/S management guidance, which is defined as the consensus forecast available at the time when management guidance was issued. Albeit introducing missing values, it is a more appropriate and reliable metric than analyst consensus forecast estimated from I/B/E/S analyst-by-analyst forecasts.

  3. I also use aggregate metrics, namely the sum of all the absolute differences in a year, for comparison purpose. The results are qualitatively similar and thus are not reported for brevity. Notice that aggregate metrics are implicitly biased against firms that issue more MFs.

  4. Execucomp item code: CEOANN.

  5. I use data table named DET_GUIDANCE for MFs and the corresponding analyst consensus forecast as of management guidance (item code: MEAN_AT_DATE).

  6. They are used to code voluntary disclosure metrics shown in Tables 8 and 9 in “Appendix”. Note that there is no RANGE_DESC code of 5 or 7 in my sample.

  7. This includes firm-year observations with and without MFs.

  8. The results by OLS with firm fixed effects and clustered standard errors are qualitatively similar, and thus are not reported for brevity.

  9. Note that exclusive restriction is not a necessity for CF approach.

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Authors and Affiliations

  1. Financial Research Center, Fudan Development Institute (FDDI), Fudan University, 220 Handan Rd, Shanghai, 200437, China

    Yankuo Qiao

  2. The George B. Delaplaine Jr. School of Business, Hood College, 401 Rosemont Ave, Frederick, MD, 21701, United States

    Yankuo Qiao

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Appendix

Appendix

See Tables 7, 8, 9, and 10

Table 7 Variable definitions
Full size table
Table 8 Coding rules for MFs accuracy
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Table 9 Construction of CEO power index for prestige power, expertise power and ownership power
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Table 10 Data merging and sample selection procedure
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Qiao, Y. To delegate or not to delegate? On the quality of voluntary corporate financial disclosure. Rev Manag Sci 17, 2215–2250 (2023). https://doi.org/10.1007/s11846-022-00576-y

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