Managerial Sentiment and Corporate Information Disclosure: Evidence from a Natural Experiment


Student thesis: Doctoral Thesis

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Award date6 Oct 2020


Both neoclassical economic theory and agency theory assume managers are rational in the corporate information disclosure process. From this perspective, managers have complete knowledge and forecasting ability, which can help them to choose optimal disclosure strategies after weighing the costs and benefits. Although a fast-growing body of research in psychology documents that people are subject to various cognitive behavioral biases during decision-making processes, previous literature in accounting and finance normally ignored the irrational factors that are likely to influence management disclosure decisions. This thesis aims to fill this gap by examining the impact of managerial sentiment on corporate disclosure behavior.

Following an approach employed in recent research, this thesis utilizes terrorist attacks in the United States as noneconomic exogenous shocks that lead to unexpected managerial sentiment changes. To develop a comprehensive understanding of how managerial sentiment affects corporate reporting, this thesis focuses on both mandatory and voluntary information disclosure. Specifically, I investigate the effect of managerial sentiment on corporate accounting conservatism and non-GAAP earnings disclosure, respectively.

The findings in this thesis are summarized as follows. First, if a firm is headquartered close to the locations of terrorist attacks, the adverse shocks from these extreme negative events induce pessimistic managerial sentiment, which in turn results in more conservative mandatory information disclosure and more negative non-GAAP reporting. The main findings are robust to sample matching analysis, exclusion of the effect of the 9/11 attacks, alternative measure of the key variables, and controlling for macroeconomic conditions. In addition, I find the effect of pessimistic sentiment on accounting conservatism and non-GAAP earnings disclosure is more pronounced when (1) attack events are more salient; (2) a firm’s headquarter is located in a low-crime region; and (3) a firm has an inexperienced CEO. Finally, I find a significant decline in quarterly earnings informativeness for those affected firms, indicating that pessimistic sentiment leads to negatively biased earnings information that lowers the efficiency of corporate disclosure. Collectively, the results of this thesis indicate that exogenous shocks induced by extreme negative events affect managerial sentiment and corporate disclosure practices.

    Research areas

  • Behavioral bias, managerial sentiment, terrorist attacks, accounting conservatism, non-GAAP earnings disclosure, disclosure efficiency