Date of Award

5-2021

Document Type

Campus Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

First Advisor

Sangwan Kim

Second Advisor

Robert Kim

Third Advisor

Atreya Chakraborty

Abstract

This dissertation is composed of three related essays investigating the interplay between corporate financial reporting and information environment in the capital market. The first and second essays document the effect of information environment on corporate financial reporting, and the third essay explores the equity market implications of firms’ financial disclosures. The first essay examines the effect of litigation risk on meeting or beating earnings expectations (MBE). I employ a differences-in-differences approach using the unanticipated legal event which lowered the litigation risk for firms located in the U.S. Ninth Circuit states. I find that Ninth Circuit firms are more likely to meet or beat their earnings targets after the ruling, suggesting that litigation risk decreases the likelihood of MBE based on both analyst and time-series benchmarks. This study contributes to the literature by showing that litigation risk is a significant factor influencing firms’ mandatory disclosure (i.e., reported earnings around bright-line targets). The essay also has important implications for prior research investigating corporate voluntary disclosures in anticipation of a given level of reported earnings (i.e., earnings surprise). The second essay investigates the impact of earnings non-synchronicity, defined as the extent to which a firm’s earnings are determined by firm-specific information, on managers’ non-GAAP reporting. We find that, when earnings non-synchronicity is high (i.e., when firm-specific factors play a more important role in determining firms’ earnings), (1) managers are more likely to disclose non-GAAP earnings, and (2) the quality of non-GAAP earnings is high. The evidence is consistent with managers using non-GAAP earnings as a signaling tool to mitigate higher information asymmetry when firm-specific information is more important. The third essay studies the role of accounting comparability in shaping trading volume before anticipated corporate events. The results show that the degree of delayed trading volume prior to earnings announcements is less pronounced for firms with more comparable financial statements, and that such effect is stronger for firms in more opaque information environments. The study demonstrates that comparable earnings information serves an integral mechanism enhancing the quality and quantity of firms’ information environment.

Comments

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