Disclosure Policy Choices of Stressed Firms in the U.K.

Posted: 12 Jun 1995

Abstract

This study examines disclosure choices of 81 stressed U.K. firms where stress is represented by the first-time receipt of a modified audit report during 1982-1990. I analyze the general premise that managers of these stressed firms adopt disclosure policies designed to reduce manager' shareholder information differences and thereby reduce perceived undervaluation of their firms' stock prices. Empirical results are consistent with this premise. Modified-report firms made more extensive discretionary disclosures than did comparison firms and disclosure frequency and volume are strongly and positively correlated with proxies for financial stress and restructuring. I also find that managers' decisions to make preemptive disclosure of an expected modified report is positively correlated with the materiality of the news based on two different materiality measures: the auditor's assessment of the seriousness of the underlying condition and the stock price response to initial disclosure of the modified report.

JEL Classification: M41, G12

Suggested Citation

Frost, Carol Ann, Disclosure Policy Choices of Stressed Firms in the U.K.. Available at SSRN: https://ssrn.com/abstract=55492

Carol Ann Frost (Contact Author)

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States
(940) 565- 3069 (Phone)
(940) 565-3803 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,160
PlumX Metrics