The Fleeting Effects of Disclosure Forthcomingness on Management's Reporting Credibility

Abstract

This study provides a theoretical framework and experimental evidence on how managers' disclosure decisions affect their credibility with investors. I find that in the short‐term, more forthcoming disclosure has a positive effect on management's reporting credibility, especially when management is forthcoming about negative news. However, these short‐term credibility effects do not persist over time. In the long‐term, managers who report positive earnings news are rated as having higher reporting credibility than managers who report negative earnings news, regardless of their previous disclosure decisions.