The Disclosure of Good versus Bad News: Evidence from the Biotech Industry

61 Pages Posted: 3 Dec 2018

See all articles by Luminita Enache

Luminita Enache

University of Calgary; Dartmouth College - Tuck School of Business

Lynn Li

Boston University - Questrom School of Business

Eddie Riedl

Boston University - Questrom School of Business

Date Written: October 25, 2018

Abstract

This paper examines how the type of news affects firms’ product–level voluntary disclosures. Our sample is publicly–traded biotech firms, a setting which provides strong empirical identification via (i) hand–collected product–level disclosures as our dependent variable, and (ii) product–level evidence of individual drugs’ progression through key regulatory milestones towards marketability as our experimental variable. Of note, the disclosures allow us to distinguish firms’ disclosure treatment of good news (i.e., when drugs progress towards marketability) versus bad news (i.e., when drugs fail a key milestone). We document three key empirical findings: (i) product disclosure is increasing in good news (consistent with benefits such as reduced information asymmetry); (ii) product disclosure is increasing in bad news (consistent with benefits such as reduced litigation costs); and more importantly (iii) product disclosure is higher for good news relative to bad news. Collectively, our findings suggest that managers perceive net benefits associated with voluntary product–level disclosure as increasing with the degree of both good and bad news, and that the perceived benefits to disclosure are greater for good news relative to bad news.

Keywords: proprietary costs, voluntary disclosure, good news, bad news, biotech industry, FDA

JEL Classification: M41, L65

Suggested Citation

Enache, Luminita and Li, Lynn and Riedl, Edward J., The Disclosure of Good versus Bad News: Evidence from the Biotech Industry (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3290822 or http://dx.doi.org/10.2139/ssrn.3290822

Luminita Enache

University of Calgary ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Dartmouth College - Tuck School of Business ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Lynn Li

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Edward J. Riedl (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

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