Do Managers Disclose or Withhold Bad News? Evidence from Short Interest

Bao, Dichu, Kim, Yongtae, Mian, G. Mujtaba and Su, Lixin (Nancy) 2019, Do Managers Disclose or Withhold Bad News? Evidence from Short Interest, Accounting Review, vol. 94, no. 3, pp. 1-26, doi: 10.2308/accr-52205.

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Title Do Managers Disclose or Withhold Bad News? Evidence from Short Interest
Author(s) Bao, Dichu
Kim, Yongtae
Mian, G. Mujtaba
Su, Lixin (Nancy)
Journal name Accounting Review
Volume number 94
Issue number 3
Start page 1
End page 26
Total pages 27
Publisher American Accounting Association
Place of publication Ann Arbor, Mich.
Publication date 2019-05
ISSN 0001-4826
Keyword(s) earnings guidance
8-K filings
voluntary disclosure
short interest
short selling
Summary ABSTRACT Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers' private bad news (residual short interest) and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news. Data Availability: Data used in this study are available from public sources identified in the study.
Language eng
DOI 10.2308/accr-52205
Indigenous content off
Field of Research 1501 Accounting, Auditing and Accountability
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Accounting
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