Jun 24, 2013
from 11:00 AM to 12:30 PM
|Contact Name||Louise Gutteridge|
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In this paper, we examine the impact of managers’ pay duration on voluntary disclosures. Pay duration refers to the average period that it takes for managers’ annual compensation to vest. We hypothesize that pay duration can incentivize managers to provide more disclosures by better aligning the interest of shareholders and managers. Using management earnings forecasts to capture voluntary disclosures, we find that after controlling for the magnitude of stock-based compensation, managers with longer pay duration have a higher tendency to issue earnings forecasts and issue forecasts more frequently. We also document that the impact of pay duration on voluntary disclosure is greater for bad news forecasts than for good news forecasts, consistent with managers with longer pay duration being less concerned with short-term price drops. In addition, we find that the impact of pay duration on disclosures is more pronounced among firms with less transparent information environment and for firms with a lower level of institutional investors’ ownership, when the marginal effect of additional disclosure is larger. Finally, additional analyses indicate that pay duration is positively related with the accuracy of management forecasts and that the effect of pay duration is mainly pronounced for long-run forecasts than for short-run forecasts. Overall, our paper contributes to the literature by examining how lengthening the vesting periods of managers’ compensation can address the agency problems in the context of voluntary disclosure.