The Market for Corporate Control and Information Quality: Evidence from Peer Firm Disclosure Response to Takeover Threat
50 Pages Posted: 17 Nov 2018
Date Written: October 25, 2018
We examine the voluntary disclosure behavior of peer firms of hostile takeover targets upon a hostile takeover announcement in the industry. We find that peer firms facing an increase in control shock provide more transparent voluntary disclosure as compared to control firms, as evidenced in the greater quantity and precision of voluntary disclosure provided. In contrast to research findings on direct targets of control contests, we find that peers of hostile takeover targets increase bad news disclosure and that this disclosure is more accurate. This suggests that managers with more long-term labor market reputation concerns choose disclosure transparency over obfuscation. Our study contributes to the voluntary disclosure literature on firms’ disclosure changes in the corporate control contest setting, and complements the research showing that the market for corporate control disciplines managers’ real actions: we demonstrate that it also disciplines managers’ voluntary disclosure behavior.
Keywords: voluntary disclosure, transparency, control shock, hostile takeovers, career concerns
JEL Classification: G14, G32, M4, M41
Suggested Citation: Suggested Citation