The effect of stock price on discretionary disclosure

The effect of stock price on discretionary disclosure I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the good-news forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

The effect of stock price on discretionary disclosure

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-011-9165-4
Publisher site
See Article on Publisher Site

Abstract

I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the good-news forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jul 24, 2011

References

  • CEO stock option awards and the timing of corporate voluntary disclosures
    Aboody, D; Kasznik, R
  • Does earnings guidance affect market returns? The nature and information content of aggregate earnings guidance
    Anilowski, C; Feng, M; Skinner, DJ
  • The financial reporting environment: Review of the recent literature
    Beyer, A; Cohen, DA; Lys, TZ; Walther, BR
  • Insider trading and voluntary disclosures
    Cheng, Q; Lo, K
  • Earnings announcement premia and the limits to arbitrage
    Cohen, D; Dey, A; Lys, T; Sunder, S
  • Detecting earnings management
    Dechow, PM; Sloan, RG; Sweeney, AP
  • Corporate investments: Learning from restatements
    Durnev, A; Mangen, C
  • Resource allocation effects of price reactions to disclosures
    Dye, RA; Sridhar, SS

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