Hiding Bad News

Do firms hide bad news in financial reports?

Alberta School of Business researcher finds:

  • Yes, managers of poorly performing firms tend to write complex narratives in their annual reports to mask bad news.
  • Masking bad news is a firm's tactic to avoid immediate stock price drops.
  • When bad news is accumulated and finally revealed, the firm's stock price crashes.
  • Low readability of financial report narratives is a red flag for potential bad news.

Read more about hiding bad news in financial reports.

The article, "Readability of 10-K reports and stock price crash risk," is co-authored by Ke Wang and is forthcoming in Contemporary Accounting Research.

Ke Wang Ke Wang focuses his research on the role of accounting information in the context of capital markets. His current research examines capital market implications from corporate disclosure narratives. He also explores how a firm's stakeholder relations shape its financial reporting choices and capital market outcomes. Before joining the University of Alberta, Ke attended the Hong Kong Polytechnic University (BBA) and City University of Hong Kong (PhD). He is currently an Assistant Professor of Accounting at the Alberta School of Business.