Do managers withhold bad news from credit rating agencies?

Ahn, Minkwan; Bonsall, Samuel B.; Buskirk, Andrew Van

doi:10.1007/s11142-019-09496-x

Cited by 20 publications

(14 citation statements)

References 47 publications

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“…The regression coefficients of RDI in columns 1 and 3 are significant and negative, indicating a negative effect of RDI on Tobin Q and ROE, respectively. This result is consistent with the proprietary cost theory, litigation cost theory, information procurement cost and prior literature (Ahn et al , 2019; Hope et al , 2016; Greco, 2012). The manager sees risk disclosures as a costly affair and discloses less to avoid litigation complications and proprietary costs .…”

Section: Empirical Findingssupporting

confidence: 92%

“…However, management exercises discretion over disclosures and sees the disclosure requirements as a burden (Verrecchia, 1983; Glaum, 2020). The discretion in disclosure primarily depends on its likely impacts (Ahn et al , 2019; Greco, 2012). It is therefore interesting to investigate the impact of risk disclosures on the firm value.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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Risk disclosures and firm value: the role of governance in an emerging market

Jain

Raithatha

2021

IJPPM

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PurposeThe objective of this paper is to investigate the impact of risk disclosures on firm value. We further investigate whether effective governance moderates the relation between risk disclosures and firm value.Design/methodology/approachWe use a sample of the top 200 Indian listed firms on NSE from 2013 to 2018. The generalised method of moments (GMM) along with the ordinary least square (OLS) is used to investigate our research problem. Further, we use the Propensity Score Matching (PSM) technique and the Heckman selection model for correcting selection bias in the robustness section.FindingsWe find that higher risk disclosures result in lower firm value. Besides, we show that better governance minimizes the negative impact of risk disclosures on firm value. This finding encourages firms to have a good governance mechanism to mitigate the adverse effects of risk disclosures in public.Originality/valueThe main contribution of our paper is to examine the moderating effect of governance between risk disclosures in the annual report and firm value (market-based and accounting-based) in the context of an emerging economy. Moreover, the paper highlights the potential moderating effect of independent directors and resourceful boards on the risk disclosures and firm value in the Indian context.

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Section: Empirical Findingssupporting

confidence: 92%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Risk disclosures and firm value: the role of governance in an emerging market

Jain

Raithatha

2021

IJPPM

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“…Prior studies show that, on average, managers withhold bad news and emphasize good news in their public disclosures, and they argue a lot on the effects of the release of bad news if it accumulates up to a threshold [19]. Kothari et al [20] examine that if the bad news leaks and good news reveals in the meanwhile, the negative reaction to the stock price dominates the positive one.…”

Section: Hypothesismentioning

confidence: 99%

Corporate Research and Development Strategy and Stock Price Crash Risk

Zhang¹,

Zhang²,

Mao³

2021

Advances in Economics, Business and Management Research

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This paper investigates the effect of research and development activity on stock price crash risk. Using a large sample of 3568 Chinese listed companies for the period 2007-2019, it is found that R&D expenditure in China is negatively associated with stock price crash risk, which suggests that the disclosure of innovation expenditures decreases the risk of dominant stock price fall. The robustness analyses suggest that the association between research and development ratio and crash risk is more pronounced in firms from emerging markets with high leverage, lower return on assets, non-Big 4 auditors, lower institutional shareholdings, and non-stated-owned enterprises. Our findings advance the understanding of research and development activity's attributes and the benefits of its disclosure in emerging markets.

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“…First, firms in less fire-prone locations may find the wildfire effect on themselves immaterial and, thus, do not need to disclose. Second, given that wildfire risk has negative connotations for firm value, managers might strategically decide to under-report this risk in regulatory filings (Ahn et al 2019;Bao et al 2019;Hutton et al 2009;Kothari et al 2009;Nagar et al 2003). Third, boilerplate disclosure is common to the non-financial sections of 10-K filings.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…First, wildfire risk reflects one aspect of firms' environmental concerns. Some firms, thus, may prefer to withhold negative news due to its adverse implication for firm value (Ahn et al 2019;Bao et al 2019;Hutton et al 2009;Kothari et al 2009;Nagar et al 2003). This is possible especially when the extent of monitoring and enforcement is limited.…”

Section: Introductionmentioning

confidence: 99%

Do Firms Experiencing More Wildfires Disclose More Wildfire Information in Their 10-Ks?

2020

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Wildfires pose a significant risk that threatens firm value. That risk may have risen significantly in recent years in light of record-breaking wildfires in the United States and elsewhere.It is an open question, however, whether such increasing wildfire risk affects firms' disclosures of wildfire-related information. We match the location of wildfires in the United States to firms with headquarters in the same county as the wildfire. Based on a difference-in-difference design and other econometric tests and methods, we find that firms exposed to more wildfire days on average provide more textual 10-K disclosure of wildfire-related information in their filings compared to firms exposed to fewer wildfire days. Our results are also significant economically. For example, when firms experience three versus zero wildfire days this increases 10-K wildfire word count by 50 percent. We attribute this positive relation to increasing trends in climate change risks and disclosure requirements related to heightened wildfire concerns. These concerns emanate mainly from wildfire-exposed firms in the western states, in the utility and banking industries, those exhibiting a high level of tangible assets, and those having experienced wildfire impacting their past operations. Overall, the findings deepen our knowledge of a heretofore unstudied risk factor important for firm value.

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Do managers withhold bad news from credit rating agencies?

Cited by 20 publications

References 47 publications

Risk disclosures and firm value: the role of governance in an emerging market

Risk disclosures and firm value: the role of governance in an emerging market

Corporate Research and Development Strategy and Stock Price Crash Risk

Do Firms Experiencing More Wildfires Disclose More Wildfire Information in Their 10-Ks?

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