In an evident endeavor to divert financial backers, firms compelled to unveil terrible news through compulsory protections and Trade Commission filings are bound to give a public statement promoting irrelevant news around the hour of the documenting.
Caleb Rawson, a bookkeeping specialist at the College of Arkansas, concentrated on a large number of purported 8-K filings by open firms somewhere in the range of 2005 and 2018—filings joined by public statements around the same time—and saw that when contrasted with firms whose filings contained positive or impartial data, firms revealing negative data were 7% bound to simultaneously give an official statement highlighting positive, irrelevant news.
“We think this is an intriguing outcome beyond the run of the mill bookkeeping research circles,” said Rawson, an associate teacher and writer of the review.
“It features how administrators are vital about dispersing data they need covered. They make it simpler and more helpful for writers to get the data they believe they should get and, hence, cover awful news about their firm. They realize news wires are simpler to focus on than the occasionally dreary mining of administrative document data sets.
“It demonstrates how managers are strategic in their dissemination of information. They make it simpler and more convenient for journalists to obtain the information they desire, burying adverse news about their company. They understand that news wires are easier to follow than the often arduous scanning of regulatory filing databases.”
Rawson, an assistant professor and author of the study.
Public firms encountering a “material occasion” should document a structure 8-K on the SEC’s public recording information base inside a specific time span. These occasions incorporate profit declarations, changes in a chief or chief, changes in evaluator, and giving a new obligation or value. The news can be positive or negative, and firms frequently issue news discharges to make sense of the occasion.
Rawson and his partners at the College of Oregon and the College of Notre Dame worked with an example of 49,652 non-profit related 8-Ks and picked filings in which the organizations gave a public statement around the same time as the 8-K. The analysts characterized the public 8-K exposures as “great” or “terrible” news and utilized printed examination to recognize whether the official statement related to a similar occasion as referenced in the 8-K.
33% of the filings in their example had a public statement zeroed in on an occasion or news not quite the same as the basic occasion that set off the 8-K. This finding nullifies suspicions held by numerous partners that official statements around the same time are reliably connected with a similar occasion.
The analysts likewise found that the utilization of simultaneous, irrelevant public statements hinders the market’s response to negative news by keeping financial backers from noticing the exposure. The speed of cost development following negative 8-K news was fundamentally slower than when the firm was given a simultaneous inconsequential public statement. The specialists substantiated these outcomes by showing that the 8-K itself was downloaded fewer times from the SEC’s EDGAR site.
“By and large, our discoveries shed light on a formerly neglected instrument that chiefs used to take advantage of financial backers’ handling limit,” Rawson said. “There are just so many exposures a financial backer can process simultaneously, and when confronted with different revelations, it takes more time for financial backers to decipher what is happening. In the event that a financial backer cycles an exposure, the person will frequently forego the advantage of handling another. Our discoveries recommend administrators know this and take advantage of financial backers’ restricted handling limit with regard to their advantage. “
The analysts’ discoveries will be published in The Bookkeeping Audit.
More information: Caleb Rawson et al, Managers’ Strategic Use of Concurrent Disclosure: Evidence from 8-K Filings and Press Releases, The Accounting Review (2022). DOI: 10.2308/TAR-2021-0088
