Essays on strategy disclosures

Zeng, Ziqing (Richard) (2021) Essays on strategy disclosures. Doctoral thesis, University of London: London Business School.

Abstract

Despite the importance of corporate disclosures on strategies to capital market participants, the existing academic literature provides limited insights into why and how firm managers disclose their companies’ strategies, what information is revealed specifically, and how market participants use or can potentially use such information. This thesis, which includes two studies, aims to fill the knowledge gap by exploring two types of strategy disclosures. In the first study, titled “Strategy-Pay Linkage and Future Performance: Evidence from FTSE 350 Firms’ Annual Reports,” I examine the economic implications of FTSE 350 firms’ strategy disclosures in the annual reports. I find that the level of strategy-pay linkage (i.e., the linkage between strategies and future CEO pay policies) disclosed in the reports is positively associated with the firms’ future operating performance. The association is stronger when firms have lower proprietary costs of disclosures, and when they have received more shareholder dissent on the directors’ remuneration reports previously. I also document that stronger strategy-pay linkage leads to greater investor consensus about firm value and lower information asymmetry between firm insiders and outsiders. The second study, titled “Strategic Plan Disclosures of Newly Appointed CEOs,” is co-authored with Tathagat Mukhopadhyay, James Ryans and Irem Tuna. We examine the determinants and market consequences of strategic plans disclosed by newly appointed CEOs at U.S. public firms. We find that new CEOs who are negatively perceived by investors when the appointment is announced are more likely to disclose a strategic plan within the first year of tenure, and tend to do so earlier than CEOs who are perceived positively. However, these disclosures do not seem to change investors’ negative perceptions, as we document a positive relation between market reactions to the CEO appointments and the reactions to the disclosures. In addition, we analyse the content of the strategic plans and find that the disclosures on growth strategies help improve the accuracy of future analyst forecasts.