Bias and the Commitment to Disclosure
Forthcoming in Management Science
37 Pages Posted: 24 Jul 2015
Date Written: June 23, 2015
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: Suggested Citation