Date of this Version
This paper studies the propensity of firms to commit to disclose information that is subsequently biased, in the presence of other firms also issuing potentially biased information. An important aspect of such an analysis is the fact that firms can choose whether to disclose or withhold information. We show that allowing the number of disclosed reports to be endogenous introduces a countervailing force to some of the empirical predictions from the prior literature. For example, we find that as more firms issue reports or as the correlation across firms’ cash flows increases, the firm biases its report less. However, when we treat firms’ disclosure choices as endogenous, we show that the number of firms that commit to disclose decreases as the correlation across these cash flows increases, and this, in turn, offsets the direct effect of the correlation on bias.
committed disclosure, earnings guidance, bias, multiple firms
Heinle, M. S., & Verrecchia, R. E. (2016). Bias and the Commitment to Disclosure. Management Science, 62 (10), 2859-2870. http://dx.doi.org/10.1287/mnsc.2015.2283
Date Posted: 27 November 2017
This document has been peer reviewed.