Three essays on the role of external governance mechanisms in managerial real decisions

Abstract

This thesis conducts empirical examination of new factors influencing both real activities manipulation and investment efficiency based on the U.S. case, extending the extant literature exploring these issues as in response to the prevalence and the detrimental effects on firms’ future values of these two firm-level real actions.
First, the thesis investigates the effect of corporate reputation as an external governance mechanism on real activities manipulation as managerial myopia, finding that there is a significantly negative relationship between corporate reputation ranking as disclosure and both real activities manipulation through sales, overproduction and discretionary expenditures and the two aggregate measures of real actions, and that corporate reputation really matters for the market response to real activities management as myopic behaviour.
Second, the thesis examines the impact of media coverage on real activities management, finding that there is significantly negative association between the level of media coverage and both real earnings management through sales, overproduction and discretionary expenditures and the one aggregate measures of real actions; that positive news reduces real activities
management through the three ways; and that the greater positive of news tone, the greater degree of reducing real earnings management.
Third, the thesis explores how media coverage affects investment efficiency. It finds comprehensive and robust evidence that media coverage improves investment efficiency. Specifically, media coverage reduces information asymmetries, alleviates financial constraints, improves external monitoring, and, by doing so, facilitates project acceptance and abandonment. The effect of media coverage on investment efficiency is more pronounced for firms characterised by more severe information and agency problems, when firms depend on external financing, and when media reports contain original news about corporate fundamentals. These findings suggest that media coverage improves investment efficiency by mitigating information asymmetries and agency problems.

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ORCID for Laura Costanzo: orcid.org/0000-0002-7197-6778

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