Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/51978

A Theory of Classification Shifting

File SizeFormat 
HARC_2018_paper_153.pdf6.61 MBAdobe PDFView/Open

Item Summary

Title: A Theory of Classification Shifting
Authors: Penno, Mark
Stecher, Jack
Keywords: Disclosure
Classification shifting
Aggregation
Simpson's paradox
Issue Date: 01 Sep 2017
Abstract: This article demonstrates that managers can influence the market by classifying some items as core earnings and others as non-core. Investors react to classifications because managers have incomplete discretion over how to classify results. Managers optimally use their discretion to pool good news with items mandatorily classified as core earnings and bad news with items mandatorily classified as non-core. Aggregation reduces this temptation to classify strategically, provided managers also have incomplete discretion over how to aggregate. That is, managers can use aggregation to separate from strategic classifiers. Our results provide empirical implications for the cross-sectional properties of financial reports.
URI/DOI: http://hdl.handle.net/10125/51978
Appears in Collections:09 Financial: Manager Ability / Financial Analysts / Disclosure (FAR1)


Please contact sspace@hawaii.edu if you need this content in an alternative format.

Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.