University of Groningen. Voluntary disclosure of corporate performance targets Impink, Johannes Anthonius

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1 University of Groningen Voluntary disclosure of corporate performance targets Impink, Johannes Anthonius IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2011 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Impink, J. A. (2011). Voluntary disclosure of corporate performance targets. Groningen: University of Groningen, SOM research school. Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date:

2 VOLUNTARY DISCLOSURE OF CORPORATE PERFORMANCE TARGETS Joost Impink

3 Publisher: University of Groningen Groningen The Netherlands Printed by: Ipskamp Drukkers B.V. ISBN: (book) (electronic version) 2011 Joost Impink All rights reserved. No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now-known or hereafter invented, including photocopying or recording, without prior written permission of the publisher.

4 RIJKSUNIVERSITEIT GRONINGEN VOLUNTARY DISCLOSURE OF CORPORATE PERFORMANCE TARGETS Proefschrift ter verkrijging van het doctoraat in de Economie en Bedrijfskunde aan de Rijksuniversiteit Groningen op gezag van de Rector Magnificus, dr. E. Sterken, in het openbaar te verdedigen op donderdag 12 mei 2011 om 11:00 uur door Johannes Anthonius Impink geboren op 11 juli 1972 te Harenkarspel

5 Promotores: Prof. dr. C. Cools Prof. dr. J.F.M.G. Bouwens Beoordelingscommissie: Prof. dr. A. de Jong Prof. dr. W.P. Rees Prof. dr. J.P.M. Suijs

6 ACKNOWLEDGEMENTS I would like to thank my supervisors for their support and for sharing their enthusiasm. First of all, I thank Jan Bouwens. Jan s enthusiasm for accounting research inspired me to participate in the first Limperg PhD course in accounting that Jan had organized, which also marked the start of my dissertation project. I also thank Jan for his enthusiasm, support and feedback during the process. I thank Peter Easton, for teaching several Limperg PhD courses in financial accounting. I found it very inspiring as a student, but also as a teacher to attend Peter s classes. I received a wealth of knowledge on accounting research in a short time span. As a teacher, these classes were also very much worthwhile, as Peter demonstrated the ability to turn lead into gold in the classroom: he calmly transformed noise produced by confused students into meaningful questions, opening the way for deeper insights. Also, I thank Peter for steering my draft research papers clear from the Abyss. I thank Kees Cools, who has been my main supervisor. I have very much enjoyed working with Kees on this dissertation, and I have learned a lot. In particular, the way Kees combines creativity and perfection has been an eye-opener for me. I also thank Matthijs Dekker and Patrick Jager for their research assistance. Their extensive - yet concise - job on data collection has enabled me to write a better dissertation. Finally, I would like to thank my wife, Idil. Even though this dissertation carries my name, it actually is a household production. Joost Impink 5

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8 You must unlearn what you have learned. Yoda, Star Wars. 7

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10 Contents Chapter 1 Introduction Mandatory disclosure Voluntary disclosure Analytical disclosure literature The Disclosure Principle and the Revelation Principle The cost of equity capital Empirical disclosure literature Maximizing stock price and return decomposition Disclosure quality Management earnings forecasts Financial targets Research questions 31 Chapter 2 The value relevance of managerial commitment Introduction and motivation Theoretical background and development of hypotheses Target disclosure as a signaling device The optimal number of corporate targets Method Stock return Equity cost of capital Cash flow news Sample Results Target disclosure and stock return Equity cost of capital Cash flow news Sensitivity Analyses Joint estimation of equity cost of capital and growth Miscellaneous sensitivity tests Summary and conclusion 60 Appendix 2.1 Variable definitions 63 9

11 Appendix 2.2: Sensitivity analysis; joint estimation of the equity cost of capital and growth 64 Chapter 3 The value relevance of target disclosure and guidance Introduction Background and hypotheses formulation Empirical model Stock price Stock return: announcement effect Stock return: long term effect Equity cost of capital Sample Results Stock price Stock return: announcement effect Stock return: long term effect Equity cost of capital Sensitivity analysis Partitioning on the sign of unexpected earnings Conclusion and limitations 91 Appendix 3.1 Variable definitions 93 Chapter 4 The stock market s reaction to managerial commitment Introduction Theoretical background and hypothesis formulation Empirical model Sample Results Conclusion 114 Chapter 5 Conclusion 118 References 120 Summary in Dutch (Nederlandstalige samenvatting)