Essays on voluntary disclosure, information uncertainty and investment

Thesis

This thesis consists of three studies contributing to voluntary disclosure, information uncertainty and investment.

The first study investigates whether and how voluntary disclosure affects the earnings announcement premium (EAP). Using S&P500 index additions as an exogenous source of variation to voluntary disclosures, we test the effect of guidance on information risk and investor attention as drivers of the EAP. We document a significantly positive (negative) effect of raised (lowered) guidance on the EAP reconciling attention-based and risk-based explanations. Disentangling direct and mediated effects, we find a positive direct effect of raised guidance on the EAP (attention channel) and a weaker countervailing negative indirect effect of raised guidance on idiosyncratic risk (risk channel). Lowered guidance has an unambiguously negative direct and indirect effect. Using high-frequency data we further confirm the effect of voluntary disclosure on both sources of the earnings announcement premium.

The second study investigates the effect of firm-level idiosyncratic uncertainty on voluntary disclosure. Using a novel dataset of consumer transaction data to measure idiosyncratic uncertainty, this study finds that idiosyncratic uncertainty reduces managers’ propensity to make voluntary capital expenditure forecasts and that the negative effect of idiosyncratic uncertainty on disclosures is weaker in periods of declining performance compared to growing performance. This study also shows that managers place more weight on their private information with an increase in idiosyncratic uncertainty and rely less on market signals, suggesting that they have more internal information under uncertainty in periods of declining performance. Additional analyses confirm this finding by showing that idiosyncratic uncertainty has a less negative impact on planned capital expenditures in periods of declining performance compared to periods of growing performance.

The third study compares the public and private firms’ investment under uncertainty. Using a novel dataset of consumer transaction data to measure firm-specific fundamental performance uncertainty, this study finds that in the presence of high uncertainty, private firms are likely to invest more compared to their public peers. Moreover, when operational volatility is high, public firms’ profitability increases with the additional capital expenditure investment; however, private firms’ profitability decreases with their additional capital expenditure investment. These empirical findings show that public firms’ information environment enables public firms access additional information to resolve uncertainty during investment decision making. Additional analysis shows that the information advantage of public firms may spillover to private firms in industries with high presence of bellwether public companies.

Authors: Song, Q

• DOI: 10.5287/ora-kerek2kry
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Subjects: Accounting