Withholding Bad News When Competing Peers Have Common Customers

62 Pages Posted: 5 Mar 2019 Last revised: 1 Jul 2020

See all articles by Rui Dai

Rui Dai

Wharton Research Data Services (WRDS)

Rui Duan

York University - Schulich School of Business

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Date Written: May 11, 2020

Abstract

This paper examines whether and how existing competitors producing similar products and supplying to common corporate customers (connected peer firms) influence a firm's strategic disclosure of adverse information. Results show that when faced with intense competition from existing competitors, managers tend to withhold disclosing bad news, a finding further supported by three sources of exogenous variation in competition from the connected peer firms. Potential competition from non-connected peers, however, is negatively associated with managerial bad news withholding behavior. Finally, we find that customer-connected peers, customers, and investors play a crucial role in shaping the managerial practice of adverse news disclosure.

Keywords: Competitive Peer Threats; Common Customers; Crash Risk; Bad News Disclosure

JEL Classification: G11, G23, G32

Suggested Citation

Dai, Rui and Duan, Rui and Ng, Lilian, Withholding Bad News When Competing Peers Have Common Customers (May 11, 2020). Available at SSRN: https://ssrn.com/abstract=3345300 or http://dx.doi.org/10.2139/ssrn.3345300

Rui Dai (Contact Author)

Wharton Research Data Services (WRDS) ( email )

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United States

Rui Duan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
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Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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