Do career concerns affect the delay of bad news disclosure?

Stephen P. Baginski, John L. Campbell, Lisa A. Hinson, David S. Koo

Research output: Contribution to journalArticlepeer-review

Abstract

Theory argues that career concerns (i.e., concerns about the impact of current performance on contemporaneous and future compensation) encourage managers to withhold bad news disclosure. However, empirical evidence regarding the extent to which a manager's career concerns are associated with a delay in bad news disclosure is limited. Across multiple proxies for career concerns, we find that the extent to which managers delay bad news is positively associated with their level of career concerns. Then, we hand-collect data on a compensation contract that firms use to reduce CEOs' career concerns (i.e., ex ante severance pay agreements). We find that if managers receive a sufficiently large payment in the event of dismissal, they no longer delay the disclosure of bad news. Overall, our findings support prior theoretical evidence that managers delay bad news disclosure due to career concerns and suggest a mechanism through which firms can mitigate the delay.

Original languageEnglish (US)
Pages (from-to)61-95
Number of pages35
JournalAccounting Review
Volume93
Issue number2
DOIs
StatePublished - Mar 2018

Keywords

  • Bad news disclosure
  • Career concerns
  • Information withholding
  • Management forecast
  • Severance pay agreements

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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