How Often Do Managers Withhold Information?>

• In Event: Factors Facilitating Disclosure: Unraveling, Career Concerns and Regulation

Abstract

We estimate and test a model of voluntary disclosure in which a manager’s
information set is uncertain (Dye 1985; Jung and Kwon 1988). In this model, a
manager makes his disclosure decision to maximize the market price, but sometimes,
for exogenous reasons, he cannot or is not willing to disclose. We offer a flexible
framework to measure the prevalence of unobservable disclosure frictions and the
quality of managers’ private information. More broadly, the method can be used to
test for voluntary disclosure in datasets featuring an option to withhold. We also
develop theory-based tests for detecting whether a firm is reporting strategically.
At the firm level, we reject strategic reporting for between 1/3 to 2/3 of the sample
of firms. Finally, estimating the model with quarterly management guidance, we
document that firms face a disclosure friction between 30% to 46% of the time.
Conditional on not facing a friction, firms strategically withhold between 4.3% to
20.7% of the time. To aid policymakers, these estimates predict that the level
of voluntary forecasts will increase by 2.6% to 13.5% in a counter-factual world
without strategic information withholding.

Authors

• Paul Ma, University of Minnesota-Minneapolis

• Jeremy Bertomeu, Baruch College

• Ivan Marinovic, Stanford University