Voluntary Disclosure Incentives and Earnings Informativeness
57 Pages Posted: 12 Aug 2008 Last revised: 25 May 2012
Date Written: January 1, 2012
We propose that the value of the earnings reporting process as an information source lies in limiting delays in the release of bad news either by inducing managers to disclose it voluntarily, or by directly releasing the negative news that managers have incentives to withhold. We compare earnings’ informativeness in bad-news and good-news quarters. Using returns to measure news, we find, consistent with our prediction, that earnings’ informativeness relative to other sources is higher in bad-news quarters than in good-news quarters. Further, cross-sectional tests indicate that earnings’ differential informativeness in bad-news quarters is more pronounced when managers do not voluntarily disclose the news, information asymmetry is stronger, and managers are net sellers of stock.
Keywords: earnings disclosure, earnings information, disciplinary role, managerial disclosures, voluntary disclosure, earnigs announcement returns, Sarbanes Oxley Act
JEL Classification: G3, M4, M40, M41
Suggested Citation: Suggested Citation