An empirical investigation of managers' interventions and asymmetry in intra-industry information transfers
Firms are subject to intra-industry information transfers when one or more of their industry-related peers release an informational event. The information contained in the event not only produces significant price revisions for the announcing firms, but also affects the share prices of their industry rivals. The prior literature on information transfers finds that announcements that carry bad news seem to result in weak information transfers, while those that convey good news seem to be associated with stronger effects.
In this context, there is anecdotal evidence suggesting that managers make strategic disclosures to shield their firms from their rivals' bad news. More generally, both theory and empirical evidence suggest that firms disclose information to separate themselves from their rivals. However, no prior studies have investigated the prospect that managers undertake such strategic disclosures in an information transfer context. Using announcements of securities class action litigation and dividend changes, I predict and find that managers of non-announcing firms make strategic disclosures to separate their firms from their industry rivals with bad news and to imitate their rivals with good news.
Furthermore, I find that both industry and announcing firms' characteristics are important factors in non-announcing firms' decisions to disclose in this context. I also find that disclosing in the face of bad news considerably reduces negative information transfers while disclosing to imitate rivals' good news enhances positive information transfers. This study offers a novel analysis on the information transfer process by analyzing non-announcing firms' patterns of deliberate interventions, which can be interpreted as the root cause for both the asymmetry and weaknesses in information transfers reported by prior research in this area.