The Effect of Stock Price on Discretionary Disclosure

Review of Accounting Studies, Forthcoming

53 Pages Posted: 2 Mar 2007 Last revised: 19 Jul 2011

Date Written: July 18, 2011

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.

Keywords: voluntary disclosure, management forecast, stock-price contagion, restatements, litigation risk

JEL Classification: M41, G14, G39

Suggested Citation

Sletten, Ewa, The Effect of Stock Price on Discretionary Disclosure (July 18, 2011). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=966706

Ewa Sletten (Contact Author)

The Ohio State University ( email )

Fisher Hall
2100 Neil Avenue
Columbus, OH 43210
United States
6142922451 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
783
Abstract Views
3,347
Rank
58,861
PlumX Metrics