Corporations disguise adverse information by issuing unrelated press releases alongside SEC filings, examine reveals | Information | Notre Dame Information
To distract buyers from unhealthy information, corporations strategically situation unrelated press releases on the identical day they file adverse information with the SEC through Type 8-Ok, in response to a brand new examine from the College of Notre Dame.
Type 8-Ok is the report publicly traded corporations should file with the SEC between quarterly studies to inform shareholders of any main occasions. Typically the information is optimistic, generally it’s adverse.
The examine examined near 50,000 non-earnings-related 8-Ok filings between 2005 and 2018, the place the agency additionally issued a information launch on the identical day. It discovered that, alongside 8-Ok studies that includes adverse information, managers are inclined to push out easier, unrelated press releases to divert consideration from the harder-to-read regulatory filings.
“Managers’ Strategic Use of Concurrent Disclosure: Evidence from 8-K Filings and Press Releases” is forthcoming in The Accounting Evaluate from Jessica Watkins, assistant professor of accountancy in Notre Dame’s Mendoza Faculty of Enterprise, together with Caleb Rawson from the College of Arkansas and Brady Twedt of the College of Oregon.
“According to our prediction, we discover that managers disclosing adverse information through SEC Type 8-Ok usually tend to situation a concurrent press launch about an unrelated occasion when in comparison with managers disclosing optimistic or impartial information,” Watkins mentioned. “We additionally discover that managers extra generally situation concurrent unrelated press releases after they have stronger incentives to divert buyers’ consideration away from 8-Ks disclosing adverse information, together with after they have an upcoming inventory sale.”
Total, about 40 % of the 8-Ks examined within the examine conveyed adverse information and 33 % have been accompanied by a same-day, unrelated press launch. The crew reveals that managers usually tend to file 8-Ks with adverse information during times with low investor consideration, sometimes on Fridays or after-market hours.
This habits slows how shortly the market incorporates the data into the corporate’s inventory value and leads to fewer folks studying the 8-Ok submitting.
The examine highlights 8-Ok filings from Netgear Inc. and Nuance Communications Inc. as examples of how associated and unrelated information releases are utilized in follow.
In 2011, Netgear Inc. filed an 8-Ok indicating it had chosen a brand new board member. The identical day, Netgear issued a information launch that supplied additional element regarding the appointment and the candidate’s {qualifications} for the place.
In distinction, Nuance Communications Inc. in 2017 filed an 8-Ok disclosing it had terminated the employment of an government vp. Nuance additionally issued a information launch that day, however this launch was about receiving an award from an industry-specific journal.
The crew concludes that Netgear’s information launch elaborates on the 8-Ok submitting and seems meant to assist buyers higher perceive the 8-Ok info. The Nuance launch, nevertheless, was unrelated and presumably issued with the intent to distract buyers from the adverse info.
“We discover it stunning this habits is so efficient,” Watkins mentioned. “Buyers shouldn’t assume press releases cowl all occasions taking place at an organization at a given time.”
Contact: Jessica Watkins, 574-631-1752, jburjek@nd.edu