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A Measure of Management’s Withholding of Bad News

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  • Vasiliki Athanasakou
  • Martin Walker

Abstract

We develop a measure of management’s withholding of bad news (NBF – net bad flows) based on the relative lumpiness of negative daily abnormal stock returns in the fiscal period. We present an extensive set of tests that support the construct validity of NBF as a measure of management’s bad news withholding. Being calculable for listed companies using daily stock return data, NBF can complement direct scores of corporate disclosures when assessing the overall quality of corporate financial communication. We also compare the properties of NBF with the properties of measures of stock price crash risk. We find that NBF outperforms traditional crash risk measures in capturing bad news withholding. Re-estimating the crash risk measures using daily instead of weekly stock returns yields more powerful proxies for bad news withholding that are more closely related to NBF.

Suggested Citation

  • Vasiliki Athanasakou & Martin Walker, 2025. "A Measure of Management’s Withholding of Bad News," European Accounting Review, Taylor & Francis Journals, vol. 34(2), pages 601-635, March.
    • Handle: RePEc:taf:euract:v:34:y:2025:i:2:p:601-635
    DOI: 10.1080/09638180.2023.2268677
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