Voluntary and Mandatory Disclosures: Do Managers View Them as Substitutes?
46 Pages Posted: 23 Mar 2017 Last revised: 7 Mar 2019
Date Written: March 1, 2019
We examine the relation between firms’ voluntary guidance and mandatory 8K filings. We find a negative relation between changes in firms’ guidance and 8K filings, and that this relation strengthens following the 2004 expansion of mandatory 8K requirements, consistent with firms using the two disclosures as substitutes. We also find that increases in 8Ks coincide with declines in firms’ subsequently announced profits, but this negative relation weakens after the 2004 regulation, consistent with firms broadening the scope of information conveyed through 8Ks away from primarily adverse events. Finally, we find that the link between 8Ks and the speed of price discovery strengthens following the 2004 regulation, consistent with 8Ks becoming a more timely source of value-relevant information. Together, our findings suggest firms have become more reliant on 8Ks as a conduit for general types of information after the 2004 regulation, rather than primarily negative news, which reduces the incentive for some firms to issue guidance as a medium of disclosure.
JEL Classification: M40, M41
Suggested Citation: Suggested Citation