Essays on Discretionary DisclosurePublic Deposited
In the first essay, I examine the impact of exogenous changes in stock prices on managers' voluntary disclosures. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information that was withheld prior to the decline because it was "unfavorable" but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good news forecasts following larger stock price declines. Moreover, as expected, there is no association between the likelihood of releasing good news forecasts and the magnitude of an exogenous stock price increase. There is some evidence that disclosure is even more selective for firms whose managers subsequently sell shares or exercise options. However, I also document a negative relationship between the likelihood of disclosing bad news forecasts and an exogenous stock price change, possibly related to firms' attempts to reduce litigation costs. Overall, this essay provides evidence that managers tend to withhold bad news from investors, and demonstrates that exogenous changes in stock price can induce disclosure of news that would not otherwise have been released. In the second essay, my co-authors and I examine the impact of insider selling incentives on strategic disclosure behavior by firms. Specifically, we examine management forecasts of IPO firms from the date of going public through the four quarters following the lockup expiration date. Lockup expirations represent the first time that insider shareholders can sell their stock since the IPO and are characterized by a significant increase in trading volume. We examine the impact of ex ante insider selling incentives on the forecasting behavior of firms. We find that firms delay bad news disclosures until the earnings announcement in the lockup expiration quarter. Firms also bias their forecasts more optimistically when trading incentives are present. We conjecture that the low litigation risk that persists after lockup expiration enables these strategic forecasts. The market does not appear to fully incorporate these incentives.