Becalli Elena, Bozzolan Saverio, Laghi Enrico, Mattei Marco / Financial Reporting / 2-2018
Empirical studies consistently provide evidence that investors perceive quaitative disclosures as useful because they have significant effects on analysts’ forecast revisions and a firm’s share price. But these results leave unanswered the question of whether managers write qualitative disclosures to inform or mislead investors. Based on the signaling theory, we consider tw actions by the same manager: one (insider trading) is a costly signal whilst the other (qualitative disclosure) is the cheap signal. We then verify whether they are coherent. We investigate the content and the verbal tone of the Letter to Shareholders and the insider trading from its author before and after the letter’s date of release and find that the costly signal (the insider trading) is not coherent with the cheap signal (the disclosure). This finding indicates that managers do not use qualitative disclosures to offer incremental information but that they might use them to mislead investors.
signaling theory, impression management, insider trading, letter to shareholder, verbal tone