Essays in financial reporting

This dissertation examines two aspects of a manager's strategic revelation of private, non-verifiable information provided to investors to facilitate their valuation of the firm's future, unknown cash flows.;The first issue concerns an investor's valuation of the firm when the manager and investor are similarly uninformed about the first moment of the stochastic process that generates a firm's earnings reports, and the manager, but not the investor, is informed about the second moment or precision of the financial reporting system. It is analytically shown that a firm may reveal the precision of its earnings report to investors by committing to a future earnings-announcement date. In equilibrium, a firm with more precise earnings commits to an earlier announcement date than a firm with less precise earnings. A more precise earnings report allows investors to better separate profitable from unprofitable firm investments. Consequently an asymmetric pricing function where stock prices are more favorable for firms that announce earnings more promptly is predicted. In addition, firms that announce earnings less promptly are more likely to have error corrections in their subsequent financial statements and to experience litigation arising from issuing misstated financial reports than firms that announce earnings promptly.;The second issue examined is a manager's incentives to voluntarily release privately observed, non-verifiable information about the firm's earnings to investors and the role of disclosure credibility in determining investors' response. When an earnings report reveals the firm's unknown economic earnings with noise, the truthful release of a manager's private information and a mandatory earnings report yields a higher expected stock price than that observed if only an earnings report is issued. Thus a manager who maximizes the firm's expected stock price benefits from voluntarily releasing his private information. However, in a single-period setting, voluntary disclosure is not credible and thus is not observed. In contrast, in a multiple-period game where the manager is able to build investor trust for truthful disclosure, there is an equilibrium where a manager's private information is almost always truthfully disclosed.