The Role of Management Talent in the Production of Informative Regulatory Filings

Date
2017-08-30
Authors
Holzman, Eric
Miller, Brian
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Abstract
This study examines the extent to which managerial talent plays a role in shaping the clarity of regulated financial disclosures. Consistent with the notion that more talented managers are likely to commit to more transparent disclosure policies, we find that more able management teams are associated with the production of more readable regulatory filings. To mitigate potential concerns that our results are driven by firm characteristics or current period performance, we show that our results are robust to the inclusion of firm fixed effects and hold across both high and low partitions of current firm performance. We also take advantage of a set of exogenous shock-based analyses (regulatory and death) that provide better identification that our results are driven by underlying differences in managerial talent. Finally, we isolate cross-sectional variation in annual report readability attributable to differences in underlying managerial talent and show that this component explains a significant amount of variation in post 10-K filing stock return volatility. In sum, our evidence suggests that managerial talent impacts a firm’s financial filing readability and has meaningful stock market implications.
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Keywords
managerial ability, disclosure, plain English readability
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