Restrictions on Managers' Outside Employment Opportunities and Asymmetric Disclosure of Bad versus Good News

2018 ◽  
Vol 94 (5) ◽  
pp. 1-25 ◽  
Author(s):  
Ashiq Ali ◽  
Ningzhong Li ◽  
Weining Zhang
Keyword(s):  
Opposite Effect ◽  
Career Concerns ◽  
Bad News ◽  
Good News ◽  
Corporate Disclosure ◽  
Employment Opportunities ◽  
Disclosure Policy ◽  
The U.S ◽  
Jel Classifications

ABSTRACT This study examines the effect of restrictions on managers' outside employment opportunities on voluntary corporate disclosure. The recognition of the Inevitable Disclosure Doctrine (IDD) by courts in the U.S. states in which the firms are headquartered places greater restrictions on their managers from joining or forming a rival company. We find that, on average, the IDD adoption increases the asymmetric withholding of bad news. We further show that the IDD adoption increases the asymmetric withholding of bad news relative to good news for firms whose managers are mainly concerned about losing their current job. However, an opposite effect is observed for firms whose managers are mainly interested in seeking promotion elsewhere. Furthermore, these effects are less pronounced for firms subject to greater monitoring of their disclosure policy. These results suggest that managers' career concerns affect corporate disclosure policy, and the effect varies with the type of career concerns. JEL Classifications: D82; M4.

Discretionary Aggregation

2016 ◽  
Vol 92 (1) ◽  
pp. 73-91 ◽  
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.

Conservatism, Optimal Disclosure Policy, and the Timeliness of Financial Reports

2001 ◽  
Vol 76 (4) ◽  
pp. 471-493 ◽  
Author(s):  
Frank B. Gigler ◽  
Thomas Hemmer
Keyword(s):  
Financial Reporting ◽  
Alternative Explanation ◽  
Bad News ◽  
Good News ◽  
Accounting System ◽  
Voluntary Disclosures ◽  
Accounting Earnings ◽  
Financial Reports ◽  
Disclosure Policy ◽  
Conservative Accounting

We develop a theory of the relation between biases in financial reporting and managers' incentives to issue timely voluntary disclosures. We find that firms with relatively more conservative accounting are less likely to make timely voluntary disclosures than firms with less conservative accounting. Therefore, price is more timely in reflecting the news of firms with less conservative accounting. Prior research has assumed that the timeliness by which news is impounded in price is uncorrelated with the nature of accounting earnings and has ascribed a concave earnings-return relation to the accounting system reporting bad news on a more timely basis than good news. In our theory, a concave relation is not necessarily attributable to a difference in the way the accounting system reports good vs. bad news. Rather, our prediction stems from how biases in mandatory financial reports determine which firms optimally choose to make voluntary preemptive disclosures and which do not. Hence, our theory provides an alternative explanation for the empirical findings and cautions against interpreting them as evidence that accounting is conservative. Finally, we identify means of empirically distinguishing between the alternative explanations.

scholarly journals Experimenting with Career Concerns

2020 ◽  
Vol 12 (1) ◽  
pp. 260-288 ◽  
Author(s):  
Marina Halac ◽  
Ilan Kremer
Keyword(s):  
Imperfect Information ◽  
Banking Industry ◽  
Public Information ◽  
Career Concerns ◽  
Bad News ◽  
Good News ◽  
Project Quality ◽  
Bad Loans ◽  
Over Time

A manager who learns privately about a project over time may want to delay quitting it if recognizing failure/lack of success hurts his reputation. In the banking industry, managers may want to roll over bad loans. How do distortions depend on expected project quality? What are the effects of releasing public information about quality? A key feature of banks is that managers learn about project quality from bad news, i.e., a default. We show that in such an environment, distortions tend to increase with expected quality and imperfect information about quality. Results differ if managers instead learn from good news. (JEL D82, D83, G21)

Do Career Concerns Affect the Delay of Bad News Disclosure?

2017 ◽  
Vol 93 (2) ◽  
pp. 61-95 ◽  
Author(s):  
Stephen P. Baginski ◽  
John L. Campbell ◽  
Lisa A. Hinson ◽  
David S. Koo
Keyword(s):  
Empirical Evidence ◽  
Career Concerns ◽  
Data Availability ◽  
Bad News ◽  
Severance Pay ◽  
The Public ◽  
Ex Ante ◽  
Theoretical Evidence ◽  
The Impact ◽  
Jel Classifications

ABSTRACT Theory argues that career concerns (i.e., concerns about the impact of current performance on contemporaneous and future compensation) encourage managers to withhold bad news disclosure. However, empirical evidence regarding the extent to which a manager's career concerns are associated with a delay in bad news disclosure is limited. Across multiple proxies for career concerns, we find that the extent to which managers delay bad news is positively associated with their level of career concerns. Then, we hand-collect data on a compensation contract that firms use to reduce CEOs' career concerns (i.e., ex ante severance pay agreements). We find that if managers receive a sufficiently large payment in the event of dismissal, they no longer delay the disclosure of bad news. Overall, our findings support prior theoretical evidence that managers delay bad news disclosure due to career concerns and suggest a mechanism through which firms can mitigate the delay. JEL Classifications: M12; M41. Data Availability: Data are available from the public sources cited in the text.

Strategic Disclosures of Litigation Loss Contingencies When Customer-Supplier Relationships Are at Risk

2017 ◽  
Vol 93 (2) ◽  
pp. 137-159 ◽  
Author(s):  
Ling Cen ◽  
Feng Chen ◽  
Yu Hou ◽  
Gordon D. Richardson
Keyword(s):  
At Risk ◽  
Supply Chain ◽  
Repeated Game ◽  
Bad News ◽  
Good News ◽  
Supplier Relationships ◽  
Strategic Disclosure ◽  
Disclosure Patterns ◽  
Jel Classifications

ABSTRACT In the presence of litigation-facing suppliers, the supply chain relationship is at risk. Suppliers with principal customers (dependent suppliers) have a higher concentration of sales to customers, and they are more at risk relative to suppliers without principal customers (non-dependent suppliers). As a result, we predict and find that litigation disclosure patterns differ for the two supplier types: dependent suppliers are more likely to delay bad news and accelerate good news related to litigation outcomes, compared to non-dependent suppliers. Such strategic disclosure patterns in our end-game setting are opposite to those documented in the existing supply chain literature for the repeated-game setting (for example, Hui, Klasa, and Yeung 2012). JEL Classifications: M41; M48; K22.

Do you want the good news or the bad news first?

2011 ◽  
Author(s):  
Angela Legg ◽  
Kate Sweeny
Keyword(s):  
Bad News ◽  
Good News
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