Voluntary Disclosure Incentives and Earnings Informativeness

57 Pages Posted: 12 Aug 2008 Last revised: 25 May 2012

Date Written: January 1, 2012


We propose that the value of the earnings reporting process as an information source lies in limiting delays in the release of bad news either by inducing managers to disclose it voluntarily, or by directly releasing the negative news that managers have incentives to withhold. We compare earnings’ informativeness in bad-news and good-news quarters. Using returns to measure news, we find, consistent with our prediction, that earnings’ informativeness relative to other sources is higher in bad-news quarters than in good-news quarters. Further, cross-sectional tests indicate that earnings’ differential informativeness in bad-news quarters is more pronounced when managers do not voluntarily disclose the news, information asymmetry is stronger, and managers are net sellers of stock.

Keywords: earnings disclosure, earnings information, disciplinary role, managerial disclosures, voluntary disclosure, earnigs announcement returns, Sarbanes Oxley Act

JEL Classification: G3, M4, M40, M41

Suggested Citation

Roychowdhury, Sugata and Sletten, Ewa, Voluntary Disclosure Incentives and Earnings Informativeness (January 1, 2012). Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1220942 or http://dx.doi.org/10.2139/ssrn.1220942

Sugata Roychowdhury (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-1764 (Phone)

Ewa Sletten

The Ohio State University ( email )

Fisher Hall
2100 Neil Avenue
Columbus, OH 43210
United States
6142922451 (Phone)

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