Three studies on managers' disclosure decisions
My first study examines whether and how opioid crisis affects management forecast quality. Lax regulations and the spreading of misinformation by pharmaceutical companies have resulted in a massive increase in opioid prescriptions in the United States, with the abuse of these drugs reaching crisis levels. I examine the effect of local opioid abuse, proxied by the opioid prescription rate in the county in which a firm's headquarters is located, on the quality of management earnings forecasts. I find that firms headquartered in counties of high opioid abuse produce significantly less accurate management earnings forecasts. This result is robust to utilizing the effective anti-opioid legislation across states as a plausibly exogenous variation that limits the prescriptions of opioid. I further find that the negative effect of opioid abuse is stronger for firms operating in more uncertain environments and is mitigated for firms with easier access to opioid treatment and for firms with superior employee welfare. Finally, I show that investors react less strongly to news in forecasts issued by firms located in high opioid areas, consistent with their recognition of the potential adverse effect of opioid abuse on information production within the firm. My second study examines how collusion in product markets affects managers' disclosure strategies and the resultant stock price crash risks. Using the staggered passage of national leniency laws in foreign countries to which United States (US) firms are exposed as a source of exogenous shock that renders cartelization less feasible, this study explores whether and how cartel collusions in product markets affect firms' ex ante expected crash risk, as captured by options' implied volatility smirk. I find investors' ex ante expected crash risk significantly increases when cartelization becomes less feasible. Further analysis shows that the relation between cartelization and crash risk is more evident for firms that are more likely to engage in collusive behaviors and for firms with managers that are more concerned about their career prospects. Overall, my findings are consistent with the notion that cartelization alleviates managers' pressure to withhold bad news, which influences investors' perceptions of a firm's future crash risk. My third study examines whether and how mergers and acquisitions in the media industry affect managers' disclosure strategies and the resultant stock price crash risks. Exploiting the staggered acquisitions of television stations by Sinclair Broadcast Group, I find a significant increase in firms' ex ante expected crash risk subsequent to the entry of Sinclair to the local market. Further analyses show that the relation between Sinclair acquisitions and firms' expected crash risks is more pronounced among firms that rely more on local news coverage, and is mitigated for firms that are included in the S&P 500 index, firms that are larger in terms of market capitalization, as well as firms spend more on advertising. Consistent with Sinclair tilts the local news towards national news that can be distributed into multiple markets, I find that TV stations acquired by Sinclair are less likely to broadcast programming on the local issues where the stations operate. I further find that the other media sources (e.g., local newspapers; radios)' coverage of local firms also significantly decrease, suggesting the overall information environment of local firms deteriorate following Sinclair acquisitions. Finally, I provide evidences that managers are more likely to withhold bad news, suggesting that managers take advantages of the increased information asymmetry between managers and investors following Sinclair acquisitions. Overall, my findings suggest that media consolidation decreases the information of local firms available to investors, increasing their perceptions of a firm's future crash risk.
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