We examine a routine and timely disclosure, earnings press releases, to determine the extent to which several novel qualitative elements of such disclosures are associated with changes in sell‐side financial analysts' information environment. Using a comprehensive set of GARCH‐based (generalized autoregressive conditional heteroscedasticity) proxies, we examine how disclosure readability's components, across‐document textual similarity, and within‐document lexical diversity alter analysts' information environment. We find that readability in the form of shorter sentences, textual similarity, and lexical diversity are strongly related to decreases in analysts' uncertainty. Further, shorter sentences and lexical diversity improve both public and private information precision, whereas similarity affects solely analysts' private information precision. While the GARCH‐based proxies allow us to alleviate concerns regarding potentially spurious inferences (Sheng and Thevenot 2012), we note as a caveat that such an estimation restricts our inferences to large, stable, and heavily followed firms. These findings should be of interest to analysts who may wish to explore the latent information contained within the qualitative elements of disclosure, regulators who direct the form and content of disclosure, and academics who study the use (and possible misuse) of various forms of information and its presentation.
SUMMARY
The study investigates whether CEOs' external connections with other executives and directors are associated with enhanced financial reporting quality. We find that CEOs with larger connections have lower discretionary accruals and are less likely to have financial restatements and material internal control weaknesses. Further results show that larger social networks are associated with higher audit quality, which translates into higher audit fees. The results are robust to a variety of alternative specifications, including controls for endogeneity, and are consistent with well-connected CEOs providing economic benefits to their firms, rather than using their position to extract rents at the expense of shareholders.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.