Public corporations which can be compelled to reveal dangerous information by means of required Securities and Trade Fee filings are prone to situation press releases asserting unrelated information across the time of the submitting to distract buyers, in line with a brand new examine.
Caleb Rawson, an accounting researcher on the College of Arkansas, studied 1000’s of Type 8-Okay filings by public corporations between 2005 and 2018 accompanied by press releases on the identical day and located that in comparison with corporations whose filings contained constructive or impartial info, corporations disclosing unfavorable info had been 7% extra prone to concurrently situation a press launch that includes constructive, unrelated information.
“We expect that is an attention-grabbing outcome past the standard accounting analysis circles,” mentioned Rawson, an assistant professor and writer of the examine, in a press release Tuesday. “It highlights how managers are strategic about disseminating info they need coated. They make it simpler and extra handy for journalists to get the data they need them to get and thus bury dangerous information about their agency. They know information wires are simpler to concentrate to than the typically tedious mining of regulatory submitting databases.”
Securities and Trade Fee headquarters in Washington, D.C.
Al Drago/Bloomberg
SEC guidelines require public corporations which can be experiencing a “materials occasion” to file a Type 8-Okay on the SEC’s EDGAR database inside a sure time interval. These occasions embrace earnings bulletins, modifications in an govt or director, modifications in auditor, and issuing new debt or fairness. The information might be good or dangerous, and corporations typically situation information releases explaining the occasion.
Rawson and his colleagues on the College of Oregon and the College of Notre Dame examined a pattern of 49,652 non-earnings-related Type 8-Ks and selected filings by which the corporations issued a press launch on the identical day because the 8-Okay. They categorized the general public 8-Okay disclosures as “good” or “dangerous” information and used textual evaluation to determine whether or not the press launch pertained to the identical occasion talked about within the 8-Okay.
They discovered that one-third of the filings of their pattern had an accompanying press launch centered on an occasion or information differing from the underlying occasion that triggered the 8-Okay, contradicting the overall assumption that press releases issued on the identical day as an SEC submitting are normally associated to the identical occasion.
The researchers additionally discovered the usage of concurrent, unrelated press releases tempers the market response to unfavorable information by drawing buyers’ consideration away from the disclosure. The pace of worth formation following unfavorable 8-Okay information was considerably slower when the corporate issued a simultaneous however unrelated press launch. The researchers corroborated these outcomes by discovering that the 8-Okay itself was downloaded fewer instances from the SEC’s EDGAR web site.
“Collectively, our findings make clear a beforehand unexplored device managers use to take advantage of buyers’ processing capability,” Rawson mentioned in a press release. “There are solely so many disclosures an investor can course of on the identical time, and when confronted with a number of disclosures, it takes longer for buyers to interpret what’s going on. If an investor processes a disclosure, she or he will typically forego the good thing about processing one other one. Our findings counsel managers know this and exploit buyers’ restricted processing capability for his or her profit.”
The examine will probably be printed in The Accounting Assessment, printed by the American Accounting Affiliation.