Do Managers Withhold Bad News?

Authors

  • S. P. KOTHARI,

    1. Sloan School of Management, Massachusetts Institute of Technology and Barclays Global Investors, San Francisco
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  • SUSAN SHU,

    1. Carroll School of Management, Boston College. Comments and suggestions from Abbie Smith (editor), an anonymous referee, Paul Healy, Chandra Kanodia, Bob Kaplan, Greg Miller, L. Shivakumar, Doug Skinner, Shyam Sunder, and Joe Weber, and seminar participants at the 2006 AAA Conference, BARC Seminar, University of Connecticut, 2005 CMU Accounting Conference, University of Edinburgh, Harvard Business School, London Business School, the 2004 FEA Conference, the University of Texas–Austin Financial Reporting Conference, and Virginia Commonwealth University are gratefully acknowledged.
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  • PETER D. WYSOCKI

    1. Sloan School of Management, Massachusetts Institute of Technology and Barclays Global Investors, San Francisco
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ABSTRACT

In this study, we examine whether managers delay disclosure of bad news relative to good news. If managers accumulate and withhold bad news up to a certain threshold, but leak and immediately reveal good news to investors, then we expect the magnitude of the negative stock price reaction to bad news disclosures to be greater than the magnitude of the positive stock price reaction to good news disclosures. We present evidence consistent with this prediction. Our analysis suggests that management, on average, delays the release of bad news to investors.

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