The Dynamics of Concealment: CEO Myopia and Information Withholding

We propose a dynamic model of corporate disclosure in which managers’ information endowment is uncertain. We consider a realistic environment in which corporate disclosures are preceded by analyst’ consensus forecasts and followed by earnings announcements. We estimate the model using a comprehensive sample of annual management forecasts released by public U.S. companies between 2004 and 2014. We find that managers withhold information strategically 26% of the time, leading to an information loss of 6%, relative to a setting where managers never hide bad news from investors. Information endowments are persistent, creating reputation concerns that result in highly sticky disclosure policies.