Terrorist attacks, managerial sentiment, and corporate disclosures

• Main Authors: CHEN, Wen, WU, Haibin, ZHANG, Liandong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: disclosure; behavioral bias; management forecast; sentiment; terrorist attacks; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1837; https://ink.library.smu.edu.sg/context/soa_research/article/2864/viewcontent/CWZ_2020_SMU.pdf
• Institution: Singapore Management University

This study investigates the effect of managerial sentiment on corporate disclosure decisions. Using terrorist attacks in the United States as adverse shocks to managerial sentiment, we find that firms located in the metropolitan areas attacked issue more negatively biased earnings forecasts. The effect is stronger for firms with higher operating uncertainty and firms with younger, inexperienced, or less confident executives and it is weaker for firms located in states with increasing violent crime rates. A potential alternative explanation is that managers could strategically bias earnings forecasts downward and attribute the poor performance to terrorist attacks. To address this issue, we conduct a battery of additional analyses and the results are more consistent with managerial sentiment than strategic attribution. In addition, we show that our results are unlikely driven by any economic effects of terrorist attacks. Finally, firms in the attacked areas also exhibit a more pessimistic tone in 10-K/10-Q filings.