Melbourne Accounting Research Seminar - Jonathan Black

Assistant Professor Jonathan Black from Purdue University will present a MARS seminar.

Topic: Determinants and Consequences of Management’s Reporting Materiality Discretion

Abstract: We identify a unique setting where managers discontinue reporting values below one million in their financial statements and use it as a reflection of managers’ exercising discretion when making materiality judgments. We examine both the determinants and consequences of this judgment. Consistent with managerial opportunism, we observe that managers tend to discontinue disclosing amounts under one million before decreases in operating performance, when risk-taking incentives are high, and when external monitoring is low. Furthermore, we find this decision is associated with a decrease in financial statement disclosure and an increase in earnings management. Consistent with the market viewing this judgment as opportunism, we find a negative market reaction when the judgment occurs and that earnings response coefficients decrease following this judgment. Our evidence suggests that managers generally use their discretion over changes in reporting materiality opportunistically, to reduce disclosure obligations.

This seminar will be conducted both face-to-face and remotely via Zoom. Register for this seminar

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