IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v73y2022ics0927538x22000312.html
   My bibliography  Save this article

Outbreak risk, managerial distraction, and corporate information disclosure: Evidence from the COVID-19 pandemic

Author

Listed:
  • Wang, Brian Yutao
  • Xu, Ruiyao
  • Zhang, Jing

Abstract

To fill the gaps between managerial distraction and disclosure quality of management earnings forecasts (MEFs), we examine the effects of managerial selective attention resulting from the COVID-19 pandemic. Using this pandemic in 2020 as an adverse shock potentially causing managerial distraction, results based on a difference-in-differences estimation suggest that managerial distraction had a negative effect on MEFs and affected forecast quality by increasing work burden and perceptual narrowing among managers, while cash reserves demonstrated a preventive function and alleviated such adverse effects. Our findings are robust, as supported by tests that address potential measurement errors.

Suggested Citation

  • Wang, Brian Yutao & Xu, Ruiyao & Zhang, Jing, 2022. "Outbreak risk, managerial distraction, and corporate information disclosure: Evidence from the COVID-19 pandemic," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000312
    DOI: 10.1016/j.pacfin.2022.101736
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X22000312
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2022.101736?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Martin Keech & Paul Beardsworth, 2008. "The Impact of Influenza on Working Days Lost," PharmacoEconomics, Springer, vol. 26(11), pages 911-924, November.
    2. Ian D. Gow & David F. Larcker & Peter C. Reiss, 2016. "Causal Inference in Accounting Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 477-523, May.
    3. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    4. Sudarshan Jayaraman & Joanna Shuang Wu, 2019. "Is Silence Golden? Real Effects of Mandatory Disclosure," Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2225-2259.
    5. Bipin Ajinkya & Sanjeev Bhojraj & Partha Sengupta, 2005. "The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 343-376, June.
    6. Narayan, Paresh Kumar & Devpura, Neluka & Wang, Hua, 2020. "Japanese currency and stock market—What happened during the COVID-19 pandemic?," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 191-198.
    7. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    8. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    9. Baek, Ehung Gi & Oh, Wankeun, 2004. "The short-run production effect of the reduction of working hours," Journal of Policy Modeling, Elsevier, vol. 26(1), pages 123-144, January.
    10. Gow, Ian D. & Larcker, David F. & Reiss, Peter C., 2016. "Causal Inference in Accounting Research," Research Papers 3393, Stanford University, Graduate School of Business.
    11. Irene Karamanou & Nikos Vafeas, 2005. "The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 453-486, June.
    12. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    13. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    14. Yinghua Li & Liandong Zhang, 2015. "Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment," Journal of Accounting Research, Wiley Blackwell, vol. 53(1), pages 79-117, March.
    15. Han, Seungjin & Qiu, Jiaping, 2007. "Corporate precautionary cash holdings," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 43-57, March.
    16. Guojin Gong & Laura Y. Li & Jeff J. Wang, 2011. "Serial Correlation in Management Earnings Forecast Errors," Journal of Accounting Research, Wiley Blackwell, vol. 49(3), pages 677-720, June.
    17. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    18. D. Eric Hirst & Lisa Koonce & Shankar Venkataraman, 2007. "How Disaggregation Enhances the Credibility of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 45(4), pages 811-837, September.
    19. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, vol. 64(5), pages 2289-2325, October.
    20. Morten Bennedsen & Francisco Pérez‐González & Daniel Wolfenzon, 2020. "Do CEOs Matter? Evidence from Hospitalization Events," Journal of Finance, American Finance Association, vol. 75(4), pages 1877-1911, August.
    21. Amy P. Hutton & Gregory S. Miller & Douglas J. Skinner, 2003. "The Role of Supplementary Statements with Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 867-890, December.
    22. Padhan, Rakesh & Prabheesh, K.P., 2021. "The economics of COVID-19 pandemic: A survey," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 220-237.
    23. Narayan, Paresh Kumar, 2021. "COVID-19 research outcomes: An agenda for future research," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 439-445.
    24. Wagenhofer, Alfred, 1990. "Voluntary disclosure with a strategic opponent," Journal of Accounting and Economics, Elsevier, vol. 12(4), pages 341-363, March.
    25. R Maria del Rio-Chanona & Penny Mealy & Anton Pichler & François Lafond & J Doyne Farmer, 2020. "Supply and demand shocks in the COVID-19 pandemic: an industry and occupation perspective," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(Supplemen), pages 94-137.
    26. Robert Libby & Kristina Rennekamp, 2012. "Self‐Serving Attribution Bias, Overconfidence, and the Issuance of Management Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 50(1), pages 197-231, March.
    27. Michael Clement & Richard Frankel & Jeffrey Miller, 2003. "Confirming Management Earnings Forecasts, Earnings Uncertainty, and Stock Returns," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 653-679, September.
    28. Dinh Hoang Bach Phan & Paresh Kumar Narayan, 2020. "Country Responses and the Reaction of the Stock Market to COVID-19—a Preliminary Exposition," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2138-2150, August.
    29. Call, Andrew C. & Campbell, John L. & Dhaliwal, Dan S. & Moon, James R., 2017. "Employee quality and financial reporting outcomes," Journal of Accounting and Economics, Elsevier, vol. 64(1), pages 123-149.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bedford, Anna & Bugeja, Martin & Ghannam, Samir & Jeganathan, Davina & Ma, Nelson, 2023. "Were CEO pay cuts during the COVID-19 pandemic merely symbolic? Shareholders' reaction and outrage," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    2. Gao, Haoyu & Li, Jinxuan & Wen, Huiyu, 2023. "Bank funding costs during the COVID-19 pandemic: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Imhof, Michael J & Seavey, Scott E., 2018. "How investors value cash and cash flows when managers commit to providing earnings forecasts," Advances in accounting, Elsevier, vol. 41(C), pages 74-87.
    2. Choonsik Lee & Heungju Park, 2016. "Financial constraints, board governance standards, and corporate cash holdings," Review of Financial Economics, John Wiley & Sons, vol. 28(1), pages 21-34, January.
    3. Lee, Choonsik & Park, Heungju, 2016. "Financial constraints, board governance standards, and corporate cash holdings," Review of Financial Economics, Elsevier, vol. 28(C), pages 21-34.
    4. Thomas Bourveau & Yun Lou & Rencheng Wang, 2018. "Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits," Journal of Accounting Research, Wiley Blackwell, vol. 56(3), pages 797-842, June.
    5. Anna Agapova & Jagadison K. Aier & Zhanel DeVides, 2022. "Earnings patterns and managerial guidance," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1173-1213, October.
    6. Heitzman, Shane & Wasley, Charles & Zimmerman, Jerold, 2010. "The joint effects of materiality thresholds and voluntary disclosure incentives on firms' disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 109-132, February.
    7. Nathan Zhenghang Zhu & Kun Tracy Wang & Mark Wilson, 2022. "The Effect of Conditional Management Earnings Forecast Mandates on Voluntary Disclosure and Analyst Forecast Properties," Abacus, Accounting Foundation, University of Sydney, vol. 58(3), pages 479-522, September.
    8. Kexing Ding & Bikki Jaggi, 2022. "CEO career concerns and the precision of management earnings forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 69-100, January.
    9. Kuo, Nan-Ting & Li, Shu & Du, Ya-Guang & Lee, Cheng-Few, 2022. "Does individual auditor quality contribute to firm value? Evidence from the market valuation on corporate cash holdings," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 135-153.
    10. Tri Tri Nguyen & Manh Cuong Nguyen & Hung Quang Bui & Tuyet Nhung Vu, 2021. "The cash-holding link within the supply chain," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1309-1344, November.
    11. Inder K. Khurana & Yinghua Li & Wei Wang, 2018. "The Effects of Hedge Fund Interventions on Strategic Firm Behavior," Management Science, INFORMS, vol. 64(9), pages 4094-4117, September.
    12. Jeong‐Bon Kim & Leye Li & Louise Yi Lu & Yangxin Yu, 2021. "Financial statement comparability and managers’ use of corporate resources," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 1697-1742, April.
    13. Ying Cao & Linda A. Myers & Albert Tsang & Yong George Yang, 2017. "Management forecasts and the cost of equity capital: international evidence," Review of Accounting Studies, Springer, vol. 22(2), pages 791-838, June.
    14. Tan, Jianhua & Chen, Tao & Zhang, Peng & Chan, Kam C., 2021. "Environmental rule enforcement and cash holdings: Evidence from a natural experiment," Economic Modelling, Elsevier, vol. 103(C).
    15. Yinghua Li & Liandong Zhang, 2015. "Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment," Journal of Accounting Research, Wiley Blackwell, vol. 53(1), pages 79-117, March.
    16. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    17. Yinghua Li & Yupeng Lin & Liandong Zhang, 2018. "Trade Secrets Law and Corporate Disclosure: Causal Evidence on the Proprietary Cost Hypothesis," Journal of Accounting Research, Wiley Blackwell, vol. 56(1), pages 265-308, March.
    18. Sung, Hao-Chang & Ho, Shirley J., 2023. "Disclosure strategies for management earnings forecasts: The role of managerial compensation structures, overoptimism, and effort," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    19. Muhammad Atif & Benjamin Liu & Sivathaasan Nadarajah, 2022. "The effect of corporate environmental, social and governance disclosure on cash holdings: Life‐cycle perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2193-2212, July.
    20. Smith, Deborah Drummond & Gleason, Kimberly C. & Kannan, Yezen H., 2021. "Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms," International Review of Financial Analysis, Elsevier, vol. 78(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.