Does Big Data Affect Managerial Incentives to Withhold Bad News? Evidence from Third-Party Online Sales Disclosures

Abstract

We evaluate whether big data relating to third-party online sales disclosures affects managerial incentives to withhold bad news. To the extent that access to big data can reduce investors’ disclosure processing costs associated with other publicly available corporate information, it is also expected to improve their abilities to monitor and discipline firms. Utilizing a data vendor’s dissemination of corporate online sales data collected from third-party e-commerce platforms in China from 2018 as an exogenous information shock, we find that firms with such data available experience significantly lower stock price crash risk than do those without similar data available to investors. The negative association between online sales data and stock price crash risk is more pronounced for firms with weak external or internal monitoring. Further analyses reveal that online sales data improve information environments as measured by earnings quality and analyst forecast accuracy. We also find increased firm value associated with the disclosure of third-party online sales data. Collectively, our evidence is consistent with the strengthening of corporate monitoring through third-party online sales data contributing to reduced investors’ disclosure processing costs.

Keywords: big data, third-party online sales disclosure, stock price crash risk

JEL Classification: G12, M41