The effects of management's preannouncement strategies on investors' judgments of the trustworthiness of management

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
Categories (categorize this paper)
DOI 10.1007/s10551-007-9408-2
 Save to my reading list
Follow the author(s)
My bibliography
Export citation
Find it on Scholar
Edit this record
Mark as duplicate
Revision history
Request removal from index
Download options
Our Archive

Upload a copy of this paper     Check publisher's policy     Papers currently archived: 29,520
Through your library
References found in this work BETA
Determinants of Earnings Management Ethics Among Accountants.Rafik Z. Elias - 2002 - Journal of Business Ethics 40 (1):33 - 45.
Professional Ethics and the Culture of Trust.Andrew Brien - 1998 - Journal of Business Ethics 17 (4):391 - 409.
Why People Obey the Law.Tom R. Tyler - 1990 - Yale University Press.

View all 9 references / Add more references

Citations of this work BETA

Add more citations

Similar books and articles
Added to PP index

Total downloads
13 ( #359,824 of 2,180,764 )

Recent downloads (6 months)
1 ( #300,627 of 2,180,764 )

How can I increase my downloads?

Monthly downloads
My notes
Sign in to use this feature

There  are no threads in this forum
Nothing in this forum yet.

Other forums