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How Often Do Managers Withhold Information?

47 Pages Posted: 7 Mar 2016  

Jeremy Bertomeu

City University of New York (CUNY) - Stan Ross Department of Accountancy

Paul Ma

University of Minnesota - Carlson School of Management

Ivan Marinovic

Stanford Graduate School of Business

Date Written: January 6, 2016

Abstract

We estimate and test a model of voluntary disclosure in which a manager’s information set is uncertain (Dye 1985; Jung and Kwon 1988). In this model, a manager makes his disclosure decision to maximize the market price, but sometimes, for exogenous reasons, he cannot or is not willing to disclose. We offer a flexible framework to measure the prevalence of unobservable disclosure frictions and the quality of managers’ private information. More broadly, the method can be used to test for voluntary disclosure in datasets featuring an option to withhold. We also develop theory-based tests for detecting whether a firm is reporting strategically. At the firm level, we reject strategic reporting for between 1/3 to 2/3 of the sample of firms. Finally, estimating the model with quarterly management guidance, we document that firms face a disclosure friction between 30% to 46% of the time. Conditional on not facing a friction, firms strategically withhold between 4.3% to 20.7% of the time. To aid policymakers, these estimates predict that the level of voluntary forecasts will increase by 2.6% to 13.5% in a counter-factual world without strategic information withholding.

Keywords: persuasion, voluntary, disclosure, structural estimation.

JEL Classification: D72, D82, D83, G20.

Suggested Citation

Bertomeu, Jeremy and Ma, Paul and Marinovic, Ivan, How Often Do Managers Withhold Information? (January 6, 2016). Available at SSRN: https://ssrn.com/abstract=2741778 or http://dx.doi.org/10.2139/ssrn.2741778

Jeremy Bertomeu (Contact Author)

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Paul Ma

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://www.paulma.org

Ivan Marinovic

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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