Explaining the Sticky Expectations Based on Disclosure Quality

Objective: Given that pricing is based on the future expectations of managers from the company status and changes in the future will change the price of the stock, the exploration of expectations based on managers' beliefs improves the recognition of their behaviors and reduces the ability to mislead and impose costs on the investor because performance instability can provide a visual viability. In other words, from the recognition of managers' behavior and performance, it is possible to reduce the risk of the investor. Changing expectations is a factor in exacerbating anomalies, resulting in an improper risk for these investors and can lead to fluctuations in capital market trading. This is rational in the form of diversion of market participants' beliefs. Change in the quality of disclosure cannot be interpreted from simple events, but it can be considered as a sign of expectations. Therefore, changes in expectations can lead to the formation of fluctuations and abnormalities in the market. Sticky expectations remain stable despite receiving new information relevant to the organization's situation. This effect seems to exist only in situations that benefit the manager. In other words, the manager is slow to adjust his decisions as new information is received. The purpose of this study is to examine the sticky expectations based on disclosure quality.

Method: The present research is descriptive in terms of purpose and correlational in terms of nature and method. Given that this research can be used in the decision-making process of investors, it is considered an applied research type. In implementing a descriptive research design, the researcher does not manipulate variables or create conditions for events to occur. Based on this classification, since none of the research variables are manipulated and it is sufficient to describe the collected information, the research method is descriptive. Correlational research includes research in which the relationship between different variables is tried to be discovered or determined using the correlation coefficient. In correlational research, the main goal is to determine the relationship between two or more variables, the size and amount of that relationship. In this research, the library method was first used to collect data and information. In the library method, the theoretical foundations of the research are collected from specialized Persian and Latin books and journals. Then, to collect data for the present study, the compressed discs of the Tehran Stock Exchange Organization's visual and statistical archives, the official website of the Tehran Stock Exchange Company and other related websites, accounting information of listed companies, and other information sources were used. In order to study the subject based on the panel regression model, in the period 2016 to 2023, data of 120 companies listed on the Tehran Stock Exchange were collected and used to test research hypotheses.

Results: The results of the research indicate that in the studied companies, we could see the managers' expectations stickiness. Also, the results of the second hypothesis of the study indicate that disclosure quality has a significant effect on the stickiness of managers’ information expectations. Finally, the sensitivity analysis conducted indicates that there is a significant difference between the high and low classes of information environment quality in terms of the sticky expectations, and it can be stated that changes in the information environment quality lead to changes in the sticky expectations.

In this study, the explanation of informational expectation stickiness based on disclosure quality has been studied. The first hypothesis of the study, that there is expectation stickiness among the companies under study, has been confirmed. Expectation stickiness is a phenomenon based on self-promotion bias. This argument explains the effect of sticky expectations as a consequence of people’s greater tendency to act based on information that is in their own interest and less tendency to act based on information that is to their detriment. The stickiness of managers’ expectations leads to dispersion and deviation in future earnings, which can lead to an increase in the risk of incorrect selection by capital market participants. Therefore, it is suggested that considering the stickiness of managers’ expectations in decision-making models can be a basis for predicting future earnings deviation. In this regard, this information can provide a basis for increasing the accuracy of capital market analysts’ forecasts. In this study, there are limitations including the variable measurement approach of managers’ expectations stickiness. Given that managers' behavior and reactions are based on individuals' internal and personality characteristics and cannot be directly observed and measured, it is necessary to be careful in generalizing the results.