Strategic Disclosure Research Articles

Firm Disclosures about Enforcement Reviews

This paper provides descriptive evidence on voluntary firm disclosures related to enforcement reviews. Our analyses are set in the German institutional environment, where firms are mandated to disclose error announcements if enforcement institutions, after conclusion of the review, formally establish financial statements to contain material errors. We find that firms provide voluntary disclosures about ongoing enforcement reviews on rare occasions while they opt to disclose information about concluded reviews more frequently. Content analyses reveal that the format of disclosures about ongoing reviews is potentially associated with the eventual review outcome, which is consistent with firms deliberately using these disclosures. This interpretation is supported by additional multivariate analyses of disclosures relating to ongoing reviews, which turn out more likely for contentious reviews. Analysis of market reactions provides weak evidence that investors price these disclosures, as negative market responses to the disclosure of error findings are mitigated. Hence, our paper provides a novel angle on the growing literature on accounting enforcement and yields insights into firm-level incentives for strategic disclosures.

Managing reputation: Evidence from biographies of corporate directors

We examine how directors’ reputations are managed through disclosure choices. We focus on disclosures in the director biographies filed with the SEC. We find that a directorship on another board is more likely to be undisclosed when the other firm experienced an adverse event—such as an accounting restatement, securities litigation, or bankruptcy—during the director's tenure. Withholding such information is associated with a more favorable stock price reaction to the director's appointment and the loss of fewer subsequent directorships. These findings suggest that reputation concerns lead to strategic disclosure choices that have real consequences in capital and labor markets.

The Association between Quarter Length, Forecast Errors, and Firms’ Voluntary Disclosures

Approximately 60% of adjacent fiscal quarters contain a different number of calendar days. Our preliminary results indicate it is important for analysts to adjust for changes in quarter length when making forecasts. However, we find the quarterly change in days is positively associated with analysts’ revenue and earnings forecasts errors, which indicates analysts systematically underestimate (overestimate) performance when quarter length increases (decreases). We find evidence indicating investors make similar errors as returns around earnings announcements are positively associated with the change in quarter length. Corroborating these findings, managers are more (less) likely to discuss quarter length during conference calls when quarter length decreases (increases). The results are consistent with managers’ strategic disclosure incentives. In summary, our evidence suggests analysts and investors fail to fully take account of the quasi-mechanical effect that quarter length has on firm performance and managers strategically alter their voluntary disclosures to take advantage of these failures.

To Share or Not to Share: Unintended Consequences in Strategic Disclosure of Information at Work

Information disclosure in the workplace has a tremendous impact on organizational functioning and relationships among employees. Prevailing findings suggest that information disclosure, especially through self-disclosure, can provide important organizational and interpersonal benefits. However, revealing potentially negative information about oneself may bring about adverse consequences to individuals. The papers of this symposium identify novel factors affecting the costs and benefits of strategic information disclosure, including the context of sharing, the target of information and the nature of existing relationships in the workplace. Beyond their theoretical contributions, findings point to important practical implications for detecting truthful opinions, affecting negotiation outcomes, and promoting employee well-being. Stefan Thau, one of the most prominent scholars on the topic of social judgment and norm violation, will facilitate a group discussion about the papers and future directions in this field. When and Why Randomized Response Techniques (Fail to) Elicit the Truth Presenter: Leslie John; Harvard Business School Presenter: George Loewenstein; Carnegie Mellon U. - Dietrich College of Humanities and Social Sciences Presenter: Alessandro Acquisti; Heinz College - Carnegie Mellon U. Presenter: Joachim Vosgerau; Bocconi U. Getting to No: Deception Using Strategic Negotiation Presenter: Krishnan Anand; U. of Utah Presenter: Pnina Feldman; Haas School of Business, UC Berkeley Presenter: Polly Kang; The Wharton School, U. of Pennsylvania Presenter: Maurice Schweitzer; U. of Pennsylvania Exaggerating the Reputational Costs of Revealing Secrets Presenter: Michael Kardas; U. of Chicago Booth School of business Presenter: Amit Kumar; U. of Chicago Booth School of business Presenter: Nicholas Epley; U. Of Chicago Disclosure of Low Socioeconomic Status of Origin in a “High Place” Presenter: Tianyu He; INSEAD Presenter: Andy Jiexiong Yap; INSEAD Whats in a Name? The Psychology Namedropping in Organizational Life Presenter: Ovul Sezer; Kenan-Flagler Business School, U. of North Carolina at Chapel Hill

The expansion of non-financial reporting: an exploratory study

We investigate how non-financial reporting (NFR) is defined and has expanded in recent years. First, we explore the heterogeneity in definitions and current NFR practices. We find a lack of convergence between regulators and standard-setters, as well as leading sustainable firms. Second, we examine the changes in the extent and type of NFR reported by firms over the period 2006–2016. Based on a sample of firms in South Africa, we document a significant increase in the amount of NFR, particularly between 2006 and 2011. This change appears to be driven by new environmental, human capital, performance and strategic disclosures. The relative importance of financial information in corporate reporting decreased substantially over the same period. Third, we compare reporting practices for corporate social responsibility (CSR)/sustainability information between constituents of the S&P 500 index and the EuroStoxx 600 index. We find that overall, the percentage of firms issuing CSR/sustainability reports increased dramatically between 2002 and 2015. Constituents of the U.S. stock index and growth firms are less likely to report CSR/sustainability information, whereas firms in the European stock index in environmentally sensitive industries, with high capital intensity and good CSR performance, larger and with better financial performance, are more likely to report CSR/sustainability information.

Adapting Disclosure Programs to Reduce the Stigma of Mental Illness.

A 2016 report from the National Academy of Sciences describes strategies that reduce the stigma of mental illness. Prominent among these are contact between people with and without mental illness and strategic disclosure for lessening both public and self-stigma. The report also recognizes the complexity of stigma in the realm of psychiatric phenomena. As a socially constructed phenomenon, mental illness stigma intersects with race-ethnicity, gender, age, and sexual orientation to affect ways in which it is perceived and experienced. Stigma also differs by condition, such as mental illness versus substance use disorder. Hence, antistigma strategies need to actively incorporate diversity concerns into future adaptation. This Open Forum reviews adaptations of the Honest, Open, Proud (HOP) program to reflect adaptation challenges for age and condition. HOP is an evidence-based program that involves strategic disclosure to manage both self- and public stigma. This essay ends with consideration of the additional intersectionality challenges of adaptation.

Strategic Timing of 8-K Filings by Privately Owned Firms

SYNOPSISManagers have discretion over the day of the week and the time of day that 8-Ks are filed with the Securities and Exchange Commission (SEC), so they can elect to file an 8-K containing negative news at times with lower market attention. Several recent studies find various stock price-related incentives for strategic filing behavior for firms with publicly traded equity. In this study, we use 8-K filings from firms with public filings (mostly from public debt) but non-public equity ownership from 2004–2014 to explore the strategic timing behavior of firms without stock price motivations. Consistent with strategic disclosure, we find evidence that bad news 8-Ks are more likely to be filed when market attention is lower (just after markets close, on Fridays, and after markets close on Fridays) even absent stock price concerns. Cross-sectionally, we find more strategic timing for firms with external scrutiny from analysts and credit rating agencies, despite the sophistication of those market participants. Within firms, we also find more strategic timing around public debt offerings, a time of increased market scrutiny for private firms. Lastly, we use EDGAR download data to provide supporting evidence that strategic timing of bad news disclosures does reduce short-window stakeholder attention to the bad news. Overall, we provide evidence that privately owned firms behave strategically within the 8-K reporting rules despite the lack of stock price incentives.

Unionization, product market competition, and strategic disclosure

We examine the disclosure policies of non-unionized firms operating in unionized industries. We test the hypothesis that non-unionized firms have an incentive to disclose more information when their unionized rivals are engaged in labor renegotiations; that is, to weaken them. We find that non-unionized firms disclose more information and more good news when renegotiations are ongoing. This behavior is stronger for larger firms, firms with fewer peers in the industry, and firms more similar to their renegotiating rivals. We also find some evidence that unionized firms are harmed by this behavior and that non-unionized firms benefit from their increased disclosures.

Managing multiple group roles: an autoethnography of communication and perceived role incompatibility

ABSTRACTThis autoethnography explores my communication surrounding the stress I experienced from perceived role incompatibilities between my role portraying a reprehensible character in a theater production and my roles as a scholar, administrator, and church member. I examine the messages that led me to believe that there were role incompatibilities that would lead to negative evaluations of my participation in the production, and the communication strategies I used to manage my self-disclosure concerning those role incompatibilities. I explore how people I informed responded to my participation. Finally, I discuss how I use similar communication strategies – strategic silence, strategic disclosures, and strategic ambiguity – to manage self-disclosure concerning another role incompatibility issue, my political views. I hope sharing my experience assists others facing similar role management issues.

Why Do Large Investors Disclose Their Information?

Large investors often advertise private information at private talks or in the media. To analyse the incentives for information disclosure, I develop a two-period Kyle (1985) type model in which an informed short-horizon investor strategically discloses private information to enhance price efficiency. I show that information disclosure is optimal when the scope of private information is large and when the large investor has a high reputation. Short investment horizons induce information disclosure among investors and are beneficial for price efficiency. However, strategic information disclosure reduces trading before disclosure and harms price discovery.

Why Do Firms Bundle Earnings and Acquisition Announcements?

An increasing fraction of M&A deals are announced on the same day in which the bidder reports its quarterly earnings, a phenomenon we call ‘bundled’ announcements. Compared to other bids, bundled bids are associated with strongly lower bidder announcement returns. We investigate possible reasons for this practice. Our findings indicate that bundling is a tool of strategic disclosure. Reported earnings of bundling acquirers are lower than those of other bidders. Bidders engage in bundling in moments of high investor attention, good earnings reports in the target industry, and when analysts’ views about the firm are divided.

The Tale of Silent Dogs: Do Stock Prices Fully Reflect the Implication of News Withholding?

Theory posits that investors can rationally infer the implications of strategic nondisclosure for firm value, pressuring managers to disclose information voluntarily. This study documents that the lack of an earnings guidance predicts an abnormal return of -41 basis points around the subsequent quarterly earnings announcement, suggesting that investors do not fully incorporate the implications of nonguidance. Further analyses demonstrate that limitations in price efficiency, driven by investors' limited attention and short‐selling constraints, explain the mispricing of nonguidance and are associated with less guidance issuance. Our results collectively highlight limited price efficiency as another friction when studying managers' strategic disclosure decisions.

Unmasking Strategic Disclosure: Evidence from Voluntary Corporate Carbon Disclosures

Information intermediaries have emerged as credible institutions for voluntary corporate disclosures of non-financial performance. However, some studies have shown that these disclosure mechanisms do not always lead to corresponding improvements in firm performance, raising concern regarding actual transparency provided by firm disclosures. This study seeks to demonstrate whether firms leverage the credibility of voluntary disclosure mechanisms to increase competitive advantage without substantive improvements in performance. We employ multiple empirical methods to detect evidence of strategic disclosure within one prominent mechanism (CDP, or Carbon Disclosure Project). Results indicate that firms tend to provide misleading performance disclosures in order to maximize scores without substantive performance improvements. The study contributes to our understanding of strategic voluntary disclosure and seeks to inform improved design of third party disclosure institutions.

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

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.

Does Risk Disclosure Reporting Quality Reduce Credit Risk?

This study aims to measure the degree of corporate risk disclosure and examines its impact on credit risk of banks listed on the UAE financial markets: Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2007-2013. The results of the content analysis show low degree of the overall risk disclosure index and all the sub-risk categories except the financial risk disclosure for all, Islamic and conventional UAE banks and the market risk disclosure for Islamic banks. The effect of the degree of the risk disclosure on credit risk is examined by applying the robust Generalized Method of Moment System Estimation (GMM) to dynamic panel data. The results of the GMM show that the higher the disclosure of strategic risk, operational risk, and damage risk, the higher the credit risk for all UAE listed banks. In terms of comparison, the results also show significant differences in credit risk, strategic risk disclosure, firm’s damage risk disclosure, and risk management disclosure between conventional and Islamic banks.

Working on the weekend: Do analysts strategically time the release of their recommendation revisions?

We examine whether financial analysts strategically time the announcement of their recommendation revisions consistent with their incentives to maintain relations with management. We provide evidence that investor and media attention to recommendation revisions is reduced on weekends, which analysts can exploit to strategically time the release of their revisions. We find that downgrades are a higher proportion of weekend revisions than weekday revisions and that analysts with characteristics that suggest they possess the strongest incentives to maintain favor with management are more likely to downgrade on the weekend. In contrast, analysts absent these characteristics are more likely to release downgrades during the week, consistent with these analysts being driven primarily by other incentives, such as the timely release of their recommendation and garnering media attention. We also present evidence suggesting that strategic disclosure of recommendation downgrades is associated with greater access to management on public earnings conference calls.

Pessimistic Earnings Guidance Before Annual Incentive Plan Approval

We study how compensation committees set CEOs’ earnings performance goals in annual incentive plans (AIPs) and their implications for managers’ strategic earning guidance behavior. We find corporate boards rely on earnings forecasts provided by both financial analysts and managers in setting performance goals. Also, the weight boards place on a manager’s earnings forecasts increases with managers’ information advantage over analysts. We next examine the implications of this process for management earnings guidance. We find that the forecasts issued by management ahead of compensation committee meetings (“event-window guidance”) are more pessimistic than those issued at other times. This pessimism in event-window earnings guidance is present when performance goals are linked to earnings-based measures such as Earnings-Per-Share (EPS), but not when they are linked to revenue, suggesting that pessimistic event-window guidance is likely motivated by a desire to depress earnings performance goals. Furthermore, pessimism in event-window guidance is associated with higher bonus payouts as well as total payouts to CEOs. Lastly, meeting or beating performance goals significantly reduces the likelihood of forced CEO turnover. Overall, this study provides insights into the process of setting managerial performance goals and management’s strategic disclosure behavior arising from this process.

Evidence Games: Truth and Commitment

An evidence game is a strategic disclosure game in which an informed agent who has some pieces of verifiable evidence decides which ones to disclose to an uninformed principal who chooses a reward. The agent, regardless of his information, prefers the reward to be as high as possible. We compare the setup in which the principal chooses the reward after the evidence is disclosed to the mechanism-design setup where he can commit in advance to a reward policy, and show that under natural conditions related to the evidence structure and the inherent prominence of truth, the two setups yield the same outcome. (JEL C72, D82, D83, K41)

Unravelling & Strategic Disclosure: Evidence from the Hospitality Industry

We consider strategic disclosure and test the unravelling principle in a new market by analysing TripAdvisor admissions made by hoteliers regionally and internationally. We construct a unique dataset and verify disclosures for 4,357 hotels across 22 locations. The major finding is that a downward linear relationship exists between ratings and disclosure. The strict equilibrium prediction -full information revelation- fails. Lower ranked hotels tend to veil TripAdvisor ratings. Evaluating interactions between ratings and internal certification indicates that the latter may serve as an anchor for disclosure. We compile two supplementary datasets from holiday catalogues and Trustpilot to answer ancillary questions arising from the findings. Our research has implications for guest experiences and business ethics as observing information gaps is psychologically challenging.

Prospectus disclosure and the stock market performance of initial public offerings (IPOs): the case of Thailand

This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks. Keywords: Prospectus disclosure, IPO performance, Thailand. JEL Classification: G14, G30, G32