Timing Manipulation in Firm Disclosures
Do CEOs time firm disclosures around their stock sales? I identify evidence of their manipulation in the timing of mandatory disclosures, whose high litigation risk deters CEOs from delivering misleading or fraudulent information. To disentangle timing of disclosures around predetermined sales from timing of sales around scheduled disclosures, I show that a CEO’s exogenously strengthened intention to sell (after option vesting dates) is followed by disclosures with a heightened negative tone, but not preceded by disclosures with a heightened positive tone. When a CEO’s urgency to sell (before option expiration dates) constrains her flexibility to time sales around disclosures, the negative tone of post-sale disclosures intensifies further, but the positive tone of pre-sale disclosures does not intensify. These results suggest that a CEO follows a passive strategy in mandatory disclosures: she withholds negative information to prevent the stock price from falling, instead of accelerating or generating positive information to push up the stock price before her sales.