The Dog that Didn't Bark: Limited Price Efficiency and Strategic Nondisclosure

58 Pages Posted: 7 Aug 2017 Last revised: 30 Jan 2020

See all articles by Frank Zhou

Frank Zhou

University of Pennsylvania - The Wharton School

Yuqing Zhou

University of California, Los Angeles (UCLA), Anderson School of Management, Students

Date Written: December 23, 2019

Abstract

Theory posits that investors can rationally infer the implications of strategic nondisclosure for firm value, pressuring managers to voluntarily disclose information. This study documents that the lack of an earnings guidance predicts an abnormal return of -41 basis points around the subsequent quarterly earnings announcement, suggesting that investors do not fully incorporate the implications of nonguidance. Further analyses demonstrate that limitations in price efficiency, driven by investors' limited attention and short-selling constraints, explain the mispricing of nonguidance and are associated with less guidance issuance. Our results collectively highlight limited price efficiency as another friction when studying managers' strategic disclosure decisions.

Keywords: Mispricing of Nonguidance; Limited Attention; Short-selling Constraints; Voluntary Disclosure

JEL Classification: G14; M41

Suggested Citation

Zhou, Frank and Zhou, Yuqing, The Dog that Didn't Bark: Limited Price Efficiency and Strategic Nondisclosure (December 23, 2019). Available at SSRN: https://ssrn.com/abstract=3013757 or http://dx.doi.org/10.2139/ssrn.3013757

Frank Zhou (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Yuqing Zhou

University of California, Los Angeles (UCLA), Anderson School of Management, Students ( email )

Los Angeles, CA
United States

HOME PAGE: http://www.yuqingzhou.com/

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