Stock-market disruptions and corporate disclosure policies

Jinglin Jiang, Vikram Nanda and Steven Chong Xiao

Journal of Corporate Finance, 2021, vol. 66, issue C

Abstract: We examine managers’' disclosure decisions in response to non-fundamental price shocks. Using mutual fund fire sales as a source of market disruption, we show some firms respond by issuing earnings guidance. Others, especially firms with weaker performance and more short-term-oriented investors, engage in accrual-based earnings management. To identify the efficacy of firm disclosure choices, we examine passage of Sarbanes-Oxley and Regulation Fair Disclosure and show that they increased reliance on guidance rather than earnings management. The shift is associated with faster post-fire-sales price recovery, suggesting enhancing information disclosure rather than manipulation is effective in mitigating the effect of market disruptions.

Keywords: Market disruption; Fire sales; Mispricing; Voluntary disclosure; Earnings management (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302066

DOI: 10.1016/j.jcorpfin.2020.101762

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