On the relative timing of voluntary disclosure among peer firms within an industry : a test of the unraveling result

Abstract

This study examines the interconnectedness in voluntary disclosure behavior among peer firms in an industry, focusing on the relative timing and concentration of the dates when firms issue quarterly management earnings forecasts (MEFs). Building on the basic intuition behind the “unraveling result” from classical disclosure theory, I hypothesize and find evidence that firms issuing MEFs earlier in a quarter than their peers convey more favorable news (relative to prevailing market expectations) and also achieve better actual performance than their peers ex post. I further predict and empirically show that the forecast dates across peer firms in a quarter are more dispersed when firms face greater uncertainty about operational performance. Finally, investors and analysts react to MEFs in accordance with the relative performance information conveyed through the disclosure sequence. Cross-sectionally, the unraveling disclosure of MEFs is less pronounced when firms have difficulties predicting their ex post earnings or when firms face higher uncertainties in detecting their relative performance. I also find that non-forecasting firms have the least favorable performances and prove the applicability of the disclosure theory in the empirical setting to non-forecasting firms. The findings provide empirical support for the mechanism behind the central result of disclosure theory and enhance our understanding of corporate disclosure behavior in the industry context.