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Does Managerial Commitment Signal Management Quality?

Does Managerial Commitment Signal Management Quality?. Mattias Hamberg (Mattias.Hamberg@nhh.no), Joost Impink (joost@ufl.edu). Motivation. Resolving uncertainty through voluntary disclosures Effect of managerial commitment? We examine relation corporate performance targets with:

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Does Managerial Commitment Signal Management Quality?

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  1. Does Managerial Commitment Signal Management Quality? Mattias Hamberg (Mattias.Hamberg@nhh.no), Joost Impink (joost@ufl.edu)

  2. Motivation • Resolving uncertainty through voluntary disclosures • Effect of managerial commitment? • We examine relation corporate performance targets with: • Current performance • Future performance

  3. Hypotheses • H1: Target disclosure signals higher performance • H2: Disclosing and meeting targets signals higher performance

  4. Forecasts/Guidance versus Targets • Forecast/guidance: • ‘Expect’ • Changing forecast/guidance implicitly allowed • Common in US (high litigation environment) • Target: • Goal/commit/target • Changing target (implicitly) not allowed • Common in several European countries (low litigation environment)

  5. Theory • Goal commitment: the unwillingness to lower or abandon a target (Campion and Lord, 1982) • Management quality: “…includes an ability to deliver promises” (Holland and Doran, 1998) • Management commitment provides incentives for workers to undertake strategy-specific investments (Ferreira and Rezende, 2007)

  6. Dataset, Measuring Financial Targets • Sample: 2,041 Swedish listed firms over 2001-2010 • Measuring target disclosure • Based on the annual report • Future performance, expressed as ‘goal, commit, target’

  7. Financial Targets Disclosure • Firms with financial targets in their 2009 annual report • Sweden (20 OMX30 firms): 70% • The Netherlands (20 AEX firms): 65% • France (CAC 40 firms): 30% • U.S. (26 Dow Jones firms): 8%

  8. Timeline Target issued for fiscal year t Realization known for targets fiscal year t

  9. Method • Test H1 (target disclosure signals higher performance) • Test H2 (meeting targets signals higher performance)

  10. H1: No support; consistent with low quality firms mimicking high quality firms

  11. H2: Support; high quality firms disclose and meet their targets

  12. Limitations • No forecasts/guidance data to make direct comparison between guidance vs targets • Self-selection difficult to control for

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