The Effect of Stock Price on Discretionary Disclosure
July 18, 2011
Review of Accounting Studies, Forthcoming
I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the good-news forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure.
Number of Pages in PDF File: 53
Keywords: voluntary disclosure, management forecast, stock-price contagion, restatements, litigation risk
JEL Classification: M41, G14, G39
Date posted: March 2, 2007 ; Last revised: July 19, 2011