Within-Industry Timing of Earnings Warnings: Do Managers Herd?

58 Pages Posted: 2 Sep 2005 Last revised: 24 Mar 2019

See all articles by Senyo Y. Tse

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business

Jenny Wu Tucker

University of Florida - Warrington College of Business

Date Written: June 1, 2009

Abstract

An earnings surprise can be caused by a combination of firm-specific factors and market or industry factors external to the firm. We hypothesize that managers have an incentive to time their warnings to occur soon after their industry peers’ warnings to minimize their apparent responsibility for earnings shortfalls. Using duration analysis, we find that firms speed up their warnings in response to peer firms’ warnings. We conduct several tests to control for alternative explanations for warning clustering (e.g., common shocks and information transfer) and conclude that the observed clustering is primarily due to herding. Our study is one of the first to empirically examine managers’ herding behavior and the first to document clustering of bad news. Moreover, we provide a multi-firm perspective on managers’ disclosure decisions that alerts researchers to consider or control for herding behavior when they examine other determinants of managers’ disclosure decisions.

Keywords: voluntary disclosure, herding, bad-news disclosure, intra-industry information transfer

JEL Classification: M41, M45

Suggested Citation

Tse, Senyo Y. and Tucker, Jenny Wu, Within-Industry Timing of Earnings Warnings: Do Managers Herd? (June 1, 2009). Review of Accounting Studies, 2010, Vol. 15 (4): 879-914, Available at SSRN: https://ssrn.com/abstract=793547 or http://dx.doi.org/10.2139/ssrn.793547

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business ( email )

Wehner 401Q, MS 4353
456C
College Station, TX 77843-4218
United States
979-845-3784 (Phone)

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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