Date of Award
Doctor of Philosophy (PhD)
Accounting & Business Law
This thesis consists of two essays focused on the role of disclosure in financial markets. Both essays examine how characteristics of a disclosure affect its use by market participants.
In Chapter 1, I examine whether unverifiable disclosures influence investor behavior. While costless, voluntary, and unverifiable disclosures are unlikely to be credible sources of information, prior research demonstrates that individual’s decisions can be influenced by uninformative content. I use a unique dataset from a peer-to-peer lending website, Prosper.com, to demonstrate an economically large effect of voluntary, unverifiable disclosures in reducing the cost of debt. My results show an additional unverifiable disclosure is associated with a 1.27 percentage point reduction in interest rate and an eight percent increase in bidding activity.
In Chapter 2, I investigate whether investors use disclosures by firms differently depending on whether they are recognized or only disclosed in financial statements. Standard setters explicitly state disclosure should not substitute for recognition in financial reports. Consistent with this directive, prior research shows investors find recognized values more pertinent than disclosed values. However, it remains unclear whether reporting items are recognized because they are more relevant for investing decisions, or whether the recognition of items itself focuses investor attention to these items. Using the context of subsequent events, I identify the differential effect of disclosure versus recognition in a setting where the accounting treatment of an item is exogenously determined. I find market prices are more sensitive to recognized values than disclosed values for firms reporting on the same or similar events. I fail to find support for the hypothesis that this difference is due to differential reliability of disclosed and recognized values. Instead my results indicate that users of financial reports react to recognized items, but fail to fully incorporate disclosed items into prices. This finding is consistent with disclosed values requiring more effort or expertise to understand and use.
Michels, Jeremy David, "Essays on Disclosure" (2013). Accounting Graduate Theses & Dissertations. 5.