Withholding Bad News When Competing Peers Have Common Customers
62 Pages Posted: 5 Mar 2019 Last revised: 1 Jul 2020
Date Written: May 11, 2020
This paper examines whether and how existing competitors producing similar products and supplying to common corporate customers (connected peer firms) influence a firm's strategic disclosure of adverse information. Results show that when faced with intense competition from existing competitors, managers tend to withhold disclosing bad news, a finding further supported by three sources of exogenous variation in competition from the connected peer firms. Potential competition from non-connected peers, however, is negatively associated with managerial bad news withholding behavior. Finally, we find that customer-connected peers, customers, and investors play a crucial role in shaping the managerial practice of adverse news disclosure.
Keywords: Competitive Peer Threats; Common Customers; Crash Risk; Bad News Disclosure
JEL Classification: G11, G23, G32
Suggested Citation: Suggested Citation