Do Managers Disclose or Withhold Bad News? Evidence from Short Interest

Dichu BAO, Yongtae KIM, Mujtaba MIAN, Lixin SU

Research output: Journal PublicationsJournal Article (refereed)peer-review

90 Citations (Scopus)


Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers' private bad news (residual short interest), based on the level of short interest in the stock, and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a consistent negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency, however, is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news.
Original languageEnglish
Pages (from-to)1-26
Number of pages26
JournalThe Accounting Review
Issue number3
Early online date27 Jul 2018
Publication statusPublished - May 2019

Bibliographical note

Publisher Copyright:
© 2019 American Accounting Association. All rights reserved.


  • earning guidance
  • 8-K filings
  • Voluntary disclosure
  • short interest
  • short selling


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