Information Flows and the Quality of Corporate Financial Communication
63 Pages Posted: 25 Jun 2016 Last revised: 11 Jul 2019
Date Written: July 7, 2019
We develop a comprehensive measure of the quality of corporate financial communication. Net bad flows (NBF) captures bad news withholding and is calculable for all listed companies using daily stock return data. NBF indicates the relative lumpiness of bad news flows during the fiscal period. We present an extensive set of tests that strongly support its construct validity. We use NBF to examine the relation between firms’ cost of equity capital and their bad news withholding and find a significant positive association, which remains after controlling for the quality of reported earnings and properties of annual report narratives.
Keywords: bad news; good news; financial communication; withholding; information quality; disclosure; NBF
JEL Classification: G20; G30; M40; M41
Suggested Citation: Suggested Citation