UBC Theses and Dissertations
Disclosure quality in capital markets from the perspective of analysts Hsieh, Chia-Chun
Regulators and the general public frequently advocate for higher-quality disclosure policies to reduce information asymmetry. Research and anecdotal evidence documents sizable benefits to firms that maintain high quality disclosure. This thesis explores the costs and benefits of changing disclosure quality from the perspective of the financial analysts, a sophisticated user group. This thesis presents a comprehensive view of analysts’ evaluations of disclosure quality. I investigate capital market reaction when firms experience a sustained decrease in analyst disclosure ratings. The results demonstrate that firms with deteriorating disclosure experience negative consequences, consistent with increasing information asymmetry. However, the magnitude is not as large as expected given the benefits enjoyed when disclosure quality improves. Given that firms that allow their disclosure quality to decline give up benefits they previously enjoy, I investigate why they allow this decline to occur. The deterioration is negatively associated with the interaction between capital demand and expected earnings performance implying that when firms require capital, but are expecting poor future earnings, they are more likely to permit a deterioration to occur. Declines are also associated with the occurrence of various disruptive events that imply greater uncertainty about the firm. These firms have a strong demand for external capital which they satisfy by accessing private and public debt markets. Overall, firms that experience disclosure ratings declines are not a mirror image of firms that experience ratings increases. Finally, I investigate the association between the disclosure ratings and quantitative disclosure characteristics. The results indicate significant associations, consistent with the assumption that easily accessible and quantifiable disclosure measures are captured in analysts’ ratings of disclosure quality. This thesis adds to the literature by providing insight into how analysts evaluate disclosure quality and what managers are willing and able to deliver. The research documents attributes of disclosure quality that are regarded as important by financial analysts. While analysts are a key set of financial statement users, there are many other types of users. By understanding disclosure quality from a user's perspective, regulators and researchers are more able to anticipate the implications of a proposed change in disclosure rules.
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Attribution-NonCommercial-NoDerivatives 4.0 International