Appendix 5. Annotated bibliography of disclosure policy studies (Text subsection: Disclosure policy orientation)

Author(s): Hoskin, Hughes, & Ricks (1986)

Sample Number - Source (dates): 676 firm/year observations - Compustat/CRSP firms (1979-81)

Method(s): Regression, disclosures of earnings forecasts

Index: Study includes analysis of qualitative comments

Findings: Qualitative comments by officers made concurrently with earnings appear to be important disclosures.

Author(s): Gibbins, Richardson, & Waterhouse (1990)

Sample Number - Source (dates): 11 disclosing firms' and 9 external organizations' members (1985-86)

Method(s): Interviews and several types of topical disclosures

Index: Inventory by both the communication medium and the topic

Findings: Two-dimensional internal preference for managing disclosures is developed. The first dimension results in uncritical acceptance of rules and norms, the second results in a propensity to seek firm-specific advantage in how disclosures are made and interpreted.

Author(s): Imhoff (1992)

Sample Number - Source (dates): 185 firms identified using 1982 edition of the Financial Analysts Federation's (FAF) Corporate Information Committee Report

Method(s): Regression

Index: Analysts' ratings

Findings: Firms with relative high (low) accounting quality are those with more (less) predictable earnings, more (less) accurate earnings forecasts, smaller (larger) annual earnings forecast revisions after first-quarter results, lower (higher) likelihood of bad-news annual earnings, larger (smaller) size, and lower (higher) debt-to-equity ratios.

Author(s): Lev (1992)

Sample Number - Source (dates): Review of actual disclosure strategies

Method(s): Descriptive analysis

Index: Actual cases

Findings: An appropriate disclosure policy should be seen as an integral part of a firm's affairs, especially because it reflects first-hand information that only managers possess.

Author(s): Lang & Lundholm (1993)

Sample Number - Source (dates): 751 firms rated at least once in the 5 FAF Reports (1985-89)

Method(s): Regression

Index: Analyst ratings of disclosure categories

Findings: Disclosure scores are higher for firms that perform well, for larger firms, for firms with a weaker relation between annual stock returns and earnings, and for firms that issue securities.

Author(s): Price (1993)

Sample Number - Source (dates): 2,533 firm/year observations obtained from Compustat and CRSP (1984-91)

Method(s): Regression, simultaneous equations (disclosure quality endogenous/exogenous)

Index: Disclosure quality evaluations published by the Association for Investment Management and Research (AIMR)

Findings: Management responds to increasing institutional ownership with higher quality disclosure.

Author(s): Welker (1993)

Sample Number - Source (dates): 2,596 firm/year observations (1981-90)

Method(s): Regression, simultaneous equations (disclosure quality endogenous/exogenous)

Index: Disclosure quality evaluations published by the AIMR

Findings: Disclosure quality reduces information asymmetry and, hence, the cost of equity capital.

Author(s): Sutley (1994)

Sample Number - Source (dates): 116 winning and 123 nonwinning annual reports in the Financial Post annual report award program (1982-87)

Method(s): Content analysis, regression

Index: Disclosure quality evaluation published by Financial Post

Findings: Content analysis of Financial Post booklets indicates that the concepts of disclosure, informativeness, and usefulness to investors are important in a judge's ranking. Changes in winners' stock prices are less correlated with contemporaneous changes in earnings in the award year than are those of nonwinners. In addition, winners have larger increases in return variability during the announcement week of annual report than do nonwinners.

Author(s): Healy, Palepu, & Sweeney (1995)

Sample Number - Source (dates): 90 firms with sustained increases in disclosure ratings (1980-90)

Method(s): Regression, control groups

Index: Disclosure quality evaluations published by the AIMR

Findings: Increased disclosure appears to be effective in helping investors to value short-term earnings growth. In addition, a high level of disclosure appears to create additional consensus among investors, leading to increased liquidity for the firm's stocks.

Author(s): Penno (1996)

Sample Number - Source (dates): Theoretical study

Method(s): Mathematical derivation

Index: Generic disclosure with variations in precision

Findings: Firms with poor (good) prospects choose more (less) precise disclosures. He calls disclosure with high precision back-to-the-wall policy, where initially unfavorable news is followed up by an extensive output of information. Disclosure with low precision is viewed as a don't-rock-the-boat policy, where good initial news is not followed up by an extensive output of information.

Author(s): Frost & Kinney (1996)

Sample Number - Source (dates): 142 foreign and 142 U.S. comparison firms - foreign registrants (1989)

Method(s): Regression, buy-and-hold trading strategy

Index: Nature and timing of disclosures by foreign registrants to the SEC

Findings: The authors report that: (1) foreign firms file fewer interim reports than do U.S. firms, (2) their reports are filed later, (3) they announce earnings later, and (4) over 80 percent of them use non-U.S. Generally Accepted Accounting Principles. Furthermore, the differences in disclosure are related to firms' filing status.

Author(s): Schadewitz & Blevins (1996c)

Sample Number - Source (dates): 64 HSE-listed firms - interim reports (1985-93)

Method(s): Actual disclosure vs. forecasted disclosure, regression

Index: 26 items, based on literature, recent interim reports, and in-depth interviews

Findings: A pattern of market response to the degree of interim disclosure exists. This is especially evidenced when the level of disclosure is as expected. The complete cycle may be characterized chronologically as: (1) anticipation, (2) reaction, (3) adjustment, (4) association, and (5) transition.

See the subsection of the text entitled: Disclosure policy orientation for a discussion of this research area.

From Disclosure Indices to Business Communication: A Review of the Transformation by Schadewitz and Blevins