How Do Managers of Non-Announcing Firms Respond to Intra-Industry Information Transfers?

Abstract

I investigate non-announcing firms’ disclosure patterns in response to information transfers. Anecdotal evidence suggests that non-announcing managers take steps to shield their firms from their peers’ bad news or to imitate their peers’ good news. However, existing research on information transfers seems to ignore this aspect. Using announcements of dividend changes, I find that non-announcing managers routinely intervene in the information transfer process by disclosing good news to dispel negative information transfers on their firms’ share prices. More importantly, I find that industry concentration plays a significant role in managers’ reactions. In particular, managers in more-concentrated industries are more likely to disclose good news following a rival’s good news, while managers in less-concentrated industries are more likely to disclose good news following a rival’s bad news. Finally, my results accentuate the role of disclosure by documenting that managers who intervene significantly reduce (increase) negative (positive) information transfers on their firms’ share prices.