Bias and the Commitment to Disclosure

Forthcoming in Management Science

37 Pages Posted: 24 Jul 2015

See all articles by Mirko Stanislav Heinle

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: June 23, 2015

Abstract

This paper studies the propensity of firms to commit to disclose information that is subsequently biased, in the presence of other firms also issuing potentially biased information. An important aspect of such an analysis is the fact that firms can choose whether to disclose or withhold information. We show that allowing the number of disclosed reports to be endogenous introduces a countervailing force to some of the empirical predictions from the prior literature. For example, we find that as more firms issue a report or as the correlation across firms' cash flows increases, the firm biases its report less. However, when we treat firms' disclosure choices as endogenous, we show that the number of firms that commit to disclose decreases as the correlation across these cash flows increases, and this, in turn, offsets the direct effect of the correlation on bias.

Keywords: committed disclosure, earnings guidance, bias, multiple firms

JEL Classification: G30, M40

Suggested Citation

Heinle, Mirko Stanislav and Verrecchia, Robert E., Bias and the Commitment to Disclosure (June 23, 2015). Forthcoming in Management Science. Available at SSRN: https://ssrn.com/abstract=2635092

Mirko Stanislav Heinle (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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