Insight

Mum is the word

When it comes to industry-wide bad news, should managers keep mum?

It seems only logical that managers wouldn’t be too keen to spread bad news about their companies, an idea that’s supported by theory, disclosure patterns and survey responses. But it’s not so simple when it comes to industry-wide bad news, since if even one firm chooses to disclose the information, it goes public. So, when would managers keep mum? Collusion, according to a study by Jonathan L Rogers, Catherine Schrand and Sarah LC Zachman, is more likely in industries with significant equity incentives and depends on what managers believe are the incentives of other firms in the industry to cooperate. The study took into account 735 possible industry-year combinations and found only 11-18 collusion cases. It also recorded that two years after the collusion episode, there were instances of lower sales growth and greater write-offs.

 

Title: Do Managers Tacitly Collude to Withhold Industry-Wide Bad News?

Source: Social Science Research Network