Blame Attribution and Disclosure Propensity

Abstract

We hypothesize that firms are less likely to disclose information regarding a material negative economic event for which the firm is likely to be blamed than for a negative economic event for which the firm is likely to be perceived as blameless. We identify 383 material negative economic events (casualty accidents, oil spills, catastrophes, investor class action lawsuits) and find thatfirms are approximately four times less likely to disclose information following a negative blamed event than for a negative blameless event. Consistent with the assertion underlying our hypothesisthat disclosure of a blamed event increases the firm’s reputation and litigation risks, we find that firms that disclose after a blamed event, but not a blameless event, experience greater reputation and litigation costs than firms that do not disclose. We also find that blame attribution provides incremental information over manager career concerns in the disclosure decision. These findings suggest that an event-specific factor—blame attribution—affects firms’ propensity to provide disclosures about material negative economic events.

Keywords: economic event, voluntary disclosure, blame, litigation risk, firm reputation

JEL Classification: K22, M41