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

53 Pages Posted: 20 Feb 2013 Last revised: 4 Nov 2014

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Sarah L. C. Zechman

University of Colorado at Boulder - Leeds School of Business

Date Written: October 30, 2014

Abstract

Our paper examines 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 empirically 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 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.

Keywords: voluntary disclosure, collusion, readability

Suggested Citation

Rogers, Jonathan L. and Schrand, Catherine M. and Zechman, Sarah L. C., Do Managers Tacitly Collude to Withhold Industry-Wide Bad News? (October 30, 2014). Chicago Booth Research Paper No. 13-12. Available at SSRN: https://ssrn.com/abstract=2221558 or http://dx.doi.org/10.2139/ssrn.2221558

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

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 Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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