Strategic Disclosure of Supplemental Information: Evidence from Book-to-Bill Ratios

Abstract

We document managers’ strategically disclose the ratio of orders received to orders fulfilled (book-to-bill), when it conveys positive news. First, we find managers disclose book-to-bill more frequently when unexpected future earnings are higher. Second, because the ratio is interpretable as the growth in the order book, we show that the disclosed ratios themselves tend to reveal good news. Examining the interaction of strategic disclosure and qualitative characterizations (i.e. using a positive or negative adjective to modify “book-to-bill”), we find managers strategically disclose to decrease the specificity of negative news rather than mislead the market. Finally, we estimate similar regressions with managerial forecasts and find different results, highlighting the possibility that managers disclose both good and bad news symmetrically, but use different metrics to do so.