تاثیر مدیریت سود بر میزان افشا و عملکرد مالی درست و حقیقی: مدارکی از شرکت های پذیرفته شده در هنگ کنگ The Impact of Earnings Management on the Extent of Disclosure and True Financial Performance: Evidence from Listed Firms in Hong Kong

We examine both the reasoning and data behind the conventional wisdom that more disclosure is not always better. Although we believe that the contribution of prior studies to the examination of linear relationships between disclosure and performance is a very important one, we continue at the point they suggest with attention to the potential non-linearities of this relation. In fact, our study speaks to the call by Hermalin and Weisbach (2012) for a better understanding of the consequence of disclosure and to the appeal in McConnell (2003) for more research on the role of outside directors. This study shows that once the likely impact of earnings management is removed from the firm performance estimates, the relation between performance and disclosure becomes nonlinear, implying that the optimal level of disclosure is less than maximal. Our evidence casts doubt on the idea that more disclosure is not free; attempts to mandate levels beyond this optimum would reduce profits. CEOs are responsible for choosing and supplying the disclosure regime; the existence and magnitude of the disclosure effect depend on CEOs who inherently conflict with stakeholders. A more accurate analysis reveals that when disclosure is too high, firm performance decreases. This reduction stems from the fact that disclosure enables the shareholders and boards to learn about CEO quality, thus additional career risk to which the CEO is exposed. Therefore, greater disclosure exacerbates existing agency problems and asymmetric information with the possibility of misrepresentation, which tends to increase earnings management due to the increased career risks that CEOs face. Our results suggest that the choice of the disclosure level creates a trade-off between acquiring information about the company and detrimental activities by CEOs. This trade-off determines the inverted U-shaped relation found between disclosure and firm performance when discretionary accruals are removed from measured firm performance. In addition, we argue that misrepresentation differs in firms depending on the CEO monitoring and certain classes of firms with more independent directors on the board are unlikely to enjoy the greater level of disclosure.