Companies do not always release important information

Apr 22, 2008

The study, led by Karen Lightstone, PhD, CA, of Saint Mary’s University in Nova Scotia, Canada, focused on companies that had received a cease-trading order (CTO), indicating that the investor could not sell shares and that the company could not issue more shares as a way of raising money.

The analysis examined press releases issued by the companies and reviewed the optimistic language (words such as “new,” “potential,” “satisfied,” and “pleased”) or the factual and forthright information (such as mentioning growing concern issues) that was included. The tone of the press release was categorized into groups such as optimistic, realistic, aggressive, and deceptive.

All of the companies reviewed were going to receive a CTO and thus had the opportunity to disclose this information before it occurred.

However, many of the companies behaved unethically. In some cases, no press releases were issued at all leading up to the CTO. Companies that issued a limited number of press releases included no mention of the CTO. Companies that issued more than four press releases leading up to the CTO appeared to use a variety of strategies to downplay any concerns. In other cases, it appeared the company attempted to convince the reader that the company activities were unaffected by the regulatory warnings or violations. Not surprisingly, disclosure of bad news was often delayed in such cases.

What was particularly interesting was the way that some companies blended optimistic information with bad news, perhaps trying to convey that a CTO was “just another announcement.”

“Our research provides evidence that company managers may behave unethically” the authors conclude. “Investor welfare and ultimately societal well-being are negatively affected by non-transparent disclosure. Shareholders deserve factual, detailed information of company activities.”

Source: Wiley

Explore further: Best of Last Week–Variance of gravitational constant, 50 years of Moore's Law and creating the sensation of invisibility

Related Stories

European physicist discusses Higgs boson at Brown University

3 hours ago

The head of the European Organization for Nuclear Research says the historic 2012 discovery of the Higgs boson particle and the particle accelerator that detected it are getting scientists closer to understanding the creation ...

IBM earnings dip as sales fall again

3 hours ago

Technology heavyweight IBM reported Monday lower profits in the first quarter following another drop in revenues, this time partly due to the strong dollar.

Recommended for you

Report details benefits of investment in basic research

7 hours ago

Last year was a notable one for scientific achievements: In 2014, European researchers discovered a fundamental new particle that sheds light on the origins of the universe, and the European Space Agency ...

Heinz Awards honors six for solving critical human issues

Apr 23, 2015

A Massachusetts Institute of Technology researcher who has developed artificial human "microlivers" that can safely test the toxicity of drugs without endangering lives is one of six people chosen to receive Heinz Awards.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.