The effects of management's preannouncement strategies on investors' judgments of the trustworthiness of management
David Bourget (Western Ontario)
David Chalmers (ANU, NYU)
Rafael De Clercq
Ezio Di Nucci
Jack Alan Reynolds
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Journal of Business Ethics 79 (4):423 - 444 (2008)
This paper examines the role of management’s earnings preannouncements on judgments about its trustworthiness by nonprofessional investors. We predict that management’s preannouncement decision and the resulting direction (e.g., favorable vs. unfavorable) of the earnings surprise influence investors’ ethical judgments about management’s trustworthiness; these judgments, in turn, are associated with investors’ other investment related judgments. We test our predictions in an experiment in which MBA students make investment-related judgments under four different preannouncement strategies. Consistent with our predictions, the results of our study show that managers’ preannouncement decisions are significantly associated with investors’ evaluations of management’s trustworthiness. Specifically, holding the size of the earnings surprise constant, we find that judgments of management’s trustworthiness are damaged more following (a) a negative as opposed to a positive earnings surprise, and (b) the release of a preannouncement compared to when management does not issue a preannouncement. Also consistent with our predictions, we find that evaluations of management’s trustworthiness are significantly and positively associated with judgments of the attractiveness of the firm’s equity as an investment. Based on our findings, we encourage further research to explore whether managers understand the trust implications associated with their preannouncement decisions and the extent to which this understanding influences their disclosure decisions.
|Keywords||earnings preannouncements nonprofessional investor judgment trustworthiness|
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References found in this work BETA
Rafik Z. Elias (2002). Determinants of Earnings Management Ethics Among Accountants. Journal of Business Ethics 40 (1):33 - 45.
Andrew Brien (1998). Professional Ethics and the Culture of Trust. Journal of Business Ethics 17 (4):391 - 409.
Tom R. Tyler (1990). Why People Obey the Law. Monograph Collection (Matt - Pseudo).
Citations of this work BETA
Nitish Singh, Yung-Hwal Park & Kevin Lehnert (2015). Research Note and Review of the Empirical Ethical Decision-Making Literature: Boundary Conditions and Extensions. Journal of Business Ethics 129 (1):195-219.
Chris M. Bell & Kelley J. Main (2011). Deonance and Distrust: Motivated Third Party Information Seeking Following Disclosure of an Agent's Unethical Behavior. [REVIEW] Journal of Business Ethics 102 (1):77-96.
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