Differential Interpretations, Private Information and Trading Volume Around French Firms' Good News vs. Bad News Preliminary Announcements

We analyze strategic speculators’ incentives to trade on information in a model where firm value is endogenous to trading, due to feedback from the financial market to corporate decisions. Trading reveals private information to managers and improves their real decisions, enhancing fundamental value. This feedback effect has an asymmetric effect on trading behavior: it increases (reduces) the profitability of buying (selling) on good (bad) news. This gives rise to an endogenous limit to arbitrage, whereby investors may refrain from trading on negative information. Thus, bad news is incorporated more slowly into prices than good news, potentially leading to overinvestment. (JEL D83, G12, G14)

Download Full-text

Discretionary Aggregation

The Accounting Review ◽

10.2308/accr-51434 ◽

2016 ◽

Vol 92 (1) ◽

pp. 73-91 ◽

Cited By ~ 3

Author(s):

Michael Ebert ◽

Dirk Simons ◽

Jack D. Stecher

Keyword(s):

Private Information ◽

Voluntary Disclosure ◽

Bad News ◽

Good News ◽

News Source ◽

Hide Information ◽

Many Sources ◽

Jel Classifications

ABSTRACT We study a disclosure decision for a firm's manager with many sources of private information. The presence of multiple numerical signals provides the manager with an opportunity to hide information via aggregation, presenting net amounts in order to show information in its best light. We show that this ability to aggregate fundamentally changes the nature of voluntary disclosure, due to the market's inability to verify that a report is free of strategic aggregation. We find that, in equilibrium, the manager fully discloses if and only if the manager's private information makes the firm look sufficiently weak. By separating bad news from good news, a disaggregate report informs the market of as much offsetting news as possible, revealing how close the news is to a neutral benchmark. The result is, therefore, pooling at the top and separation at the bottom, the opposite of what transpires with a single news source. JEL Classifications: M41; D82; D83.

Download Full-text

ANALISIS RETURN DAN LIKUIDITAS SAHAM SEBELUM DAN SESUDAH PENGUMUMAN RIGHT ISSUE DI BURSA EFEK INDONESIA

10.31227/osf.io/t35be ◽

2018 ◽

Author(s):

Irdha Yusra

Keyword(s):

Trading Volume ◽

Stock Exchange ◽

Abnormal Returns ◽

Secondary Data ◽

Bad News ◽

Good News ◽

Volume Activity ◽

Significant Difference ◽

Before And After ◽

Rights Issue

The purpose of this study was to analyze the abnormal returns and trading volume activity before and after the announcement of the rights issue. This research is the event study using secondary data. 33 companies listed in Indonesia Stock Exchange from 2005 to 2009 were sampled using a purposive sampling method, which consists of 9 samples (good news) and 24 samples (bad news). The results of this study showed that there was no significant difference in abnormal return observation period 5 days, 15 days, 60 days, 90 days, 180 days before and after the announcement of the rights issue in the group of good news and bad news. While the volume of trading activity, trading volume activity differences are significant at the 5 day period prior to the announcement of the rights issue after the group bad news.

Download Full-text

Asymmetric Reporting Timeliness and Informational Feedback

Management Science ◽

10.1287/mnsc.2020.3734 ◽

2020 ◽

Author(s):

Qi Chen ◽

Zeqiong Huang ◽

Xu Jiang ◽

Gaoqing Zhang ◽

Yun Zhang

Keyword(s):

Private Information ◽

Firm Value ◽

Reporting System ◽

Bad News ◽

Good News ◽

Price Informativeness ◽

Managerial Incentive ◽

Asymmetric Timeliness ◽

Investment Level ◽

Incentive Problems

We examine the effects of asymmetric timeliness in reporting good versus bad news on price informativeness when prices provide useful information to assist firms’ investment decisions. We find that a reporting system featuring more timely disclosure of bad news than of good news encourages speculators to trade on their private information. Consequently, it generates a higher expected investment level and firm value. Our analysis generates predictions consistent with empirical findings and provides a justification for the more timely reporting of bad news in the absence of managerial incentive problems. This paper was accepted by Brian Bushee, accounting.

Download Full-text

Shareholder Litigation and the Information Content of Management Voluntary Disclosure

The Accounting Review ◽

10.2308/accr-52651 ◽

2019 ◽

Vol 95 (5) ◽

pp. 279-298

Author(s):

Yuanyuan Ma

Keyword(s):

Information Content ◽

Private Information ◽

Voluntary Disclosure ◽

Legal Liability ◽

Bad News ◽

Good News ◽

Voluntary Disclosures ◽

Shareholder Litigation

ABSTRACT I study the information content of management voluntary disclosures disciplined by shareholder litigation. I model the litigation mechanism in which legal liabilities are based on the damages that shareholders suffer from buying a stock at an inflated price. I find that management does not fully reveal private information in equilibrium. Instead, their disclosures reveal only a range in which their private information lies. Thus, the precision of information is, to some extent, lost. Notably, increasing the severity of legal liability does not always reduce the loss of precision. In fact, when the legal liability reaches a certain level, more severe legal liability will result in less precise disclosures. I also find that good news and bad news have different precision. Specifically, good news is more precise than is bad news when legal liabilities are high, and bad news is more precise than is good news when legal liabilities are low.

Download Full-text

The Effect of Trading Volume on Analysts’ Forecast Bias

The Accounting Review ◽

10.2308/accr.00000030 ◽

2011 ◽

Vol 86 (2) ◽

pp. 451-481 ◽

Cited By ~ 48

Author(s):

Anne Beyer ◽

Ilan Guttman

Keyword(s):

Private Information ◽

Trading Volume ◽

Forecast Error ◽

Bad News ◽

Earnings Forecast ◽

Risk Averse ◽

Forecast Bias ◽

Optimal Trading ◽

Trading Decisions ◽

Separating Equilibrium

ABSTRACT: This study models the interaction between a sell-side analyst and risk-averse investors. It derives an analyst’s optimal earnings forecast and investors’ optimal trading decisions in a setting where the analyst’s payoff depends on the trading volume the forecast generates as well as on the forecast error. In the fully separating equilibrium, we find that the analyst biases the forecast upward (downward) if his private signal reveals relatively good (bad) news. The model predicts that: (1) the analyst biases the forecast upward more often than downward and the forecast is on average optimistic; (2) the magnitude of the analyst’s bias is increasing in the per-share benefit from trading volume he receives; and (3) the analyst’s expected squared forecast error may increase in the precision of his private information. Finally, we characterize the circumstances under which the (rational) analyst acts as if he overweights or underweights his private information.

Download Full-text