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Does Managerial Commitment Signal Management Quality? Mattias Hamberg Joost Impink

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Presentation on theme: "Does Managerial Commitment Signal Management Quality? Mattias Hamberg Joost Impink"— Presentation transcript:

1 Does Managerial Commitment Signal Management Quality? Mattias Hamberg (Mattias.Hamberg@nhh.no), Joost Impink (joost@ufl.edu)

2 Motivation Resolving uncertainty through voluntary disclosures Effect of managerial commitment? We examine relation corporate performance targets with: Current performance Future performance

3 Hypotheses H1: Target disclosure signals higher performance H2: Disclosing and meeting targets signals higher performance

4 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)

5 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)

6 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

7 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%

8 Timeline Target issued for fiscal year t Realization known for targets fiscal year t

9 Method Test H1 (target disclosure signals higher performance) Test H2 (meeting targets signals higher performance)

10 H1: No support; consistent with low quality firms mimicking high quality firms

11 H2: Support; high quality firms disclose and meet their targets

12 Limitations No forecasts/guidance data to make direct comparison between guidance vs targets Self-selection difficult to control for


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