Does Managerial Commitment Signal Management Quality?
Mattias Hamberg ([email protected]),
Joost Impink ([email protected])
Motivation
Resolving uncertainty through voluntary disclosures
Effect of managerial commitment? We examine relation corporate
performance targets with: Current performance Future performance
Hypotheses
H1: Target disclosure signals higher performance
H2: Disclosing and meeting targets signals higher performance
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)
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)
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’
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%
Timeline
Target issued forfiscal year t
Realization known fortargets fiscal year t
Method
Test H1 (target disclosure signals higher performance)
Test H2 (meeting targets signals higher performance)
H1: No support; consistent with low quality firms mimicking high quality firms
H2: Support; high quality firms disclose and meet their targets
Limitations
No forecasts/guidance data to make direct comparison between guidance vs targets
Self-selection difficult to control for