Abstract

http://ssrn.com/abstract=2221558
 
 

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Do Managers Tacitly Collude to Withhold Industry-Wide Bad News?


Jonathan L. Rogers


University of Chicago - Booth School of Business

Catherine M. Schrand


University of Pennsylvania - Accounting Department

Sarah L. C. Zechman


University of Chicago - Booth School of Business

May 1, 2014

Chicago Booth Research Paper No. 13-12
Fama-Miller Working Paper

Abstract:     
Our paper provides a framework for voluntary disclosure choice about a different type of “news” than traditional models consider. Firms are exposed to a continuous flow of information about industry conditions that are correlated and uncertain. We predict that capital market pressure and externality costs associated with being the second mover to disclose could make coordinated withholding of adverse industry-wide signals a difficult equilibrium to sustain. A cooperative withholding equilibrium is possible, but its sustainability depends on the structure of the industry and the nature of news in the industry. We document cases of increased intra-industry obfuscation of adverse signals in annual 10-Ks, controlling for changes in fundamentals. Strategic withholding is more likely in industries with greater negative tailrisk, greater equity incentives, and industry trade associations that foster interpersonal connections. The results have implications for understanding when economic forces are sufficient to generate voluntary disclosure of industry-wide adverse conditions.

Number of Pages in PDF File: 58

Keywords: voluntary disclosure, collusion, readability

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Date posted: February 20, 2013 ; Last revised: July 31, 2014

Suggested Citation

Rogers, Jonathan L. and Schrand, Catherine M. and Zechman, Sarah L. C., Do Managers Tacitly Collude to Withhold Industry-Wide Bad News? (May 1, 2014). Chicago Booth Research Paper No. 13-12; Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2221558 or http://dx.doi.org/10.2139/ssrn.2221558

Contact Information

Jonathan L. Rogers
University of Chicago - Booth School of Business ( email )
5807 S Woodlawn
Chicago, IL 60637-1561
United States
773-834-0161 (Phone)
Catherine M. Schrand
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6798 (Phone)
215-573-2054 (Fax)

Sarah L. C. Zechman (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773)702-7136 (Phone)
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