The Opportunistic Reporting of Material Events and the Apparent Misconception of Investors' Reaction

Abstract

Using a comprehensive sample of non-earnings 8-K filings from 2005–2013, we examine whether firms engage in strategic reporting of mandatory and voluntary news. In particular, we examine whether firms report negative news when investor attention is low, and whether firms bundle positive and negative news. Our findings support the notion that managers believe in the existence of investor inattention and engage in strategic disclosure by reporting negative news after trading hours. These results particularly apply to public firms, where equity market pressures provide stronger incentives to mitigate market reaction to news by exploiting investor inattention. Further analysis of the market reaction to strategic disclosure uncovers no evidence of investor inattention, consistent with market efficiency. We also observe that public firms are more likely to engage in strategic disclosure through news bundling and that the likelihood of strategic disclosure through bundling increases with the likelihood of strategic disclosure through timing.