Differential stock market reactions to the presentation and timing of the announcements of restructuring charges and write -off

News reports describe management's selection practices of special charge announcements regarding presentation (choice between restructuring charges and writeoffs) and timing (when to make announcements) as potentially opportunistic. In other words, managers are using special charge announcements to mask the true firm quality in order to favorably affect the market's perceptions. On the other hand, company managers declare their innocence about special charge announcements. Prior research concerning special charges, however, provides little insight into this issue.;In this thesis, I investigate the association between the true firm quality, managers' choice of presentation and timing of special charge announcements, and the market's reactions to the different types of announcements. By doing so, I examine whether managers intend to send a signal to the market to reveal their firms' true quality (signaling scenario) or to mask their firms' true performance in order to favorably affect investors' perceptions of the firms (opportunism scenario). I use the current and future operating performance of the announcement firms to represent their true firm quality.;I set up three hypotheses that predict the association between the true firm quality, the decisions regarding announcement and announcement type, and the market reactions to the announcement. I then develop a two-dimensional framework based on the presentation and timing of the announcements to analyze the effect of management's communication to investors. I use a sample of announcements of large negative special charges that were announced during 1986--1992, when the managers of firms had a great deal of discretion in announcing special charges. The results are consistent with a signaling scenario. Corporate managers intentionally choose presentation and timing of special charge announcements, using the flexibility allowed under the absence of relevant accounting rules, in order to send a signal to reveal their true quality to investors. Also, the market interprets the signal appropriately.