Melbourne Accounting Research Seminar - Professor K. Ramesh
Melbourne Accounting Research Seminar
The FBE Building
Theatre 4 (room 221)
111 Barry St, Carlton
Gladys Lee and Like Jiang
Professor K. Ramesh from Rice University will present a MARS seminar.
Topic: Price Discovery in Good and Bad Times: An Analysis of the Annual Corporate Disclosure Cycle (with Edward Xuejun Li, Min Shen and Joanna Shuang Wu)
Abstract: We study a comprehensive set of both voluntary and mandatory disclosure channels (including earnings announcements, management guidance and pre-announcements, conference presentations, annual shareholder meetings, press releases and SEC filings) and evaluate their aggregate impact on price discovery in good news versus bad news years. Our results are consistent with managerial incentives to withhold bad news. Such incentives contribute not only to timelier price discovery of good news relative to bad news in the annual cycle but also to a lower total share of price contribution from corporate disclosures in bad news years that is an order of magnitude smaller than in good news years. In addition, we provide additional insights on the relative contribution of the different disclosure channels in bad news versus good news years, and more importantly, the selective use of good news by managers to mitigate the effects of adverse news in bad news cycles. Further analysis shows that managerial incentives to withhold bad news weaken with more intensive monitoring and greater litigation risk. Finally, we show that information intermediaries’ overall contribution to price discovery is modest relative to firm disclosures and does not vary substantially between good and bad news years. In addition, private information acquisition intensifies in bad news years when incentives for firm disclosures are more limited.