Do Managers Withhold Bad News?

54 Pages Posted: 21 Sep 2005 Last revised: 27 Apr 2012

See all articles by S.P. Kothari

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Susan Shu

Boston College - Carroll School of Management

Peter D. Wysocki

Boston University Questrom School of Business

Abstract

In this study, we examine whether managers delay disclosure of bad news relative to good news. If managers accumulate and withhold bad news up to a certain threshold, but leak and immediately reveal good news to investors, then we expect the magnitude of the negative stock price reaction to bad news disclosures to be greater than the magnitude of the positive stock price reaction to good news disclosures. We present evidence consistent with this prediction. Our analysis suggests that management, on average, delays the release of bad news to investors.

Keywords: Bad News, Conservatism, Disclosure

JEL Classification: G14, G30, K22, M41, M45, D82, M40

Suggested Citation

Kothari, S.P. and Shu, Susan and Wysocki, Peter D., Do Managers Withhold Bad News?. Journal of Accounting Research, Forthcoming; MIT Sloan Research Paper No. 4556-05. Available at SSRN: https://ssrn.com/abstract=803865

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Susan Shu

Boston College - Carroll School of Management ( email )

Boston College
140 Commonwealth Ave.
Chestnut Hill, MA 02167
United States
617-552-1759 (Phone)

Peter D. Wysocki

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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