| In contrast to common notions of the information content of financial disclosures and accounting variables, this dissertation. provides theory and empirical evidence suggesting that accounting discretion can result in disinformative signals to equity traders. A disinformative signal is defined as a signal that results in equity traders revising their distributions over some pricing-relevant variable such that their expectations become less precise. A hypothesis is developed, based on Scharfstein and Stein's (1990) herd behavior model—and, more generally, on learning, herd behavior, and noise trading models in the information and financial economics literatures—that discretionary disclosures can be disinformative to equity traders under certain conditions. Empirical evidence consistent with this hypothesis is presented in simultaneous long- and short-window associations between bank loan loss provision components, equity return variance, and share volume. Accordingly, this study presents both theory mid empirical evidence suggesting that discretionary accounting disclosures can be disinformative under certain conditions. |
