Terrorist Attacks, Managerial Sentiment, and Corporate Disclosures

53 Pages Posted: 3 Jun 2020 Last revised: 13 Jul 2020

See all articles by Wen Chen

Wen Chen

City University of Hong Kong (CityUHK)

Haibin Wu

City University of Hong Kong (CityUHK)

Liandong Zhang

Singapore Management University - School of Accountancy

Date Written: April 23, 2020

Abstract

This study investigates the effect of managerial sentiment on corporate disclosure decisions. Using terrorist attacks in the United States as adverse shocks to managerial sentiment, we find that firms located in the metropolitan areas attacked issue more negatively biased earnings forecasts. The effect is stronger for firms with higher operating uncertainty and firms with younger, inexperienced, or less confident executives and it is weaker for firms located in states with increasing violent crime rates. A potential alternative explanation is that managers strategically bias earnings forecasts downward and attribute the poor performance to terrorist attacks. To address this issue, we conduct a battery of additional analyses and find results more consistent with managerial sentiment than strategic attribution. In addition, we show that our results are unlikely to be driven by any economic effects of terrorist attacks. Finally, firms in attacked areas exhibit a more pessimistic tone in 10-K/10-Q filings.

Keywords: disclosure;behavioral bias; management forecast; sentiment; terrorist attacks

JEL Classification: D83; G14; M41

Suggested Citation

Chen, Wen and Wu, Haibin and Zhang, Liandong, Terrorist Attacks, Managerial Sentiment, and Corporate Disclosures (April 23, 2020). Singapore Management University School of Accountancy Research Paper No. 2020-110, Available at SSRN: https://ssrn.com/abstract=3583268 or http://dx.doi.org/10.2139/ssrn.3583268

Wen Chen (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Haibin Wu

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Liandong Zhang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://accountancy.smu.edu.sg/faculty/profile/150531/Liandong-ZHANG

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