Information Flows and the Quality of Corporate Financial Communication

63 Pages Posted: 25 Jun 2016 Last revised: 11 Jul 2019

See all articles by Vasiliki E. Athanasakou

Vasiliki E. Athanasakou

Saint Mary's University, Canada - Sobey School of Business

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: July 7, 2019

Abstract

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

Athanasakou, Vasiliki E. and Strong, Norman Charles and Walker, Martin, Information Flows and the Quality of Corporate Financial Communication (July 7, 2019). Available at SSRN: https://ssrn.com/abstract=2799681 or http://dx.doi.org/10.2139/ssrn.2799681

Vasiliki E. Athanasakou (Contact Author)

Saint Mary's University, Canada - Sobey School of Business ( email )

Sobey Building 311
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada

Norman Charles Strong

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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