Do managers really disclose bad news early? Examination of management forecast in Japan’s effectively mandated disclosure

Abstract

Previous studies investigating the asymmetry of stock market reactions to news have shown that managers delay the disclosure of bad news. By focusing on the Japanese market, where the information environment for investors regarding management forecasts is well developed and a lot of information is provided to investors, we find that managers disclose bad news earlier. Furthermore, we show that the higher the market’s expectations of management’s forecasts at the beginning of the fiscal year, the earlier management disclose bad news. We focus on disclosure systems outside the U.S., and contribute to previous studies by showing that differences in disclosure systems affect management’s disclosure behavior.