Are performance explanations credible or strategic? Evidence from a large sample of MD&As1
Author
Faculty Advisor
Date
2024
Keywords
executive compensation, firm performance, management, attributions, market reaction, textual analysis
Abstract (summary)
This paper examines managers’ explanations of firm performance (i.e., management attributions) in a large sample of the Management's Discussion and Analysis (MD&A) section of annual reports. We find that managers of poorly performing firms tend to attribute firm performance to external factors. We further propose a prediction model to decompose management external attributions into a credible part and a strategic part and find that both components are negatively related to firm performance. This evidence suggests that management external attributions partially reflect the actual impact of external conditions on firm performance and are not entirely subject to managerial opportunism. Additionally, we find that investors react more strongly to firm performance when managers provide credible external attributions, especially for firms without a bad reputation for strategic external attributions. We also show that executive compensation is less sensitive to firm performance when managers make more strategic external attributions.
Publication Information
Gong, S., Hao, Y., & Wang, X. (2024). Are performance explanations credible or strategic? Evidence from a large sample of MD&As1. The Journal of Corporate Accounting & Finance, 35(3), 241–258. https://doi.org/10.1002/jcaf.22707
Notes
Item Type
Article
Language
Rights
Attribution-NonCommercial-NoDerivs (CC BY-NC-ND)
