Management Forecasting Behavior Following Public News Events

We examine how managers adapt their disclosure behavior in response to (public) news shocks not anticipated by them. The extent to which such events would affect subsequent disclosure is a function of the nature of the news---whether it represents ``good'' or ``bad'' news, and whether the news is industry-wide or firm-specific. Appealing to extant disclosure theories, we posit that firm-level and industry-level news events have different implications for the forecasting behavior of firms. We identify firm-level and industry-level news shocks from quarterly stock-returns data and find that the average firm is less likely to issue a forecast if it is a firm-level shock (positive and negative). However, we find a positive association between industry-level shock (positive and negative) and managers’ forecasting propensity. In addition, firms show a greater propensity to meet or exceed analyst consensus following positive shocks and to report a shortfall following negative shocks (firm- and industry-level).