بد، رونق و ورشکستگی: هشدارهای سود در طول چرخه کسب و کار  The Bad, the boom and the bust: Profit warnings over the business cycle

1. Introduction A firm’s managers have more information about the expected profitability of the firm than investors. When that profitability falls short of analysts’ expectations, managers can voluntarily choose to issue a profit warning (PW), typically about 3–4 weeks ahead of the formal earnings announcement. A PW differs from an earnings announcement in the sense that it occurs irregularly and unpredictably across firms and time. Kothari, Shu, and Wysocki (2009) argue that the large negative return generated from bad news that is unanticipated gives management an incentive to withhold bad news. PWs exhibit this negative reaction and the firm suffers a substantial decline in the stock price (Bulkley & Herrerias, 2005; Kasznik & Lev, 1995; Spohr, 2014; Tucker, 2007; Xu, 2008). Mendenhall and Nichols (1988) and Chen and Mohan (1994) argue that when managers issue PWs they are striving to time the bad news release in order to minimize the negative market reaction. Previous research has also indicated that the interpretation of bad news is different over the business cycle (DeStefano, 2004). So some environments might be better than others for a voluntary disclosure. 3Com Corp issued a profit warning during the evening of December 4, 2000, near the top of a long bull market. When the market opened the next day, its price fell nearly 30 percent, an abnormal return of −32.5%. 3Com warned again nearly three months later. The market reaction in early March 2001 to this PW was a stock price decline of 21%, an abnormal return of −4.7%. While there are important differences between these two warnings themselves, the state of the market may have also been an important factor in the market reaction. The Dow Jones Industrial Average was still near its high during the first warning, which was at the end of the economic expansion period. The economy had just entered a recession during the second warning and the NASDAQ (where 3Com stock traded) was collapsing. Anasymmetricmarket response to badnews is predicted by severaltheoreticalmodels. For example,the regime switching model of Veronesi (1999) explains the asymmetric impacts of bad news throughout the business cycle in terms of changing an investor’s belief system. During good times, investors do not expect bad news. If bad news occurs during good times, investors are surprised and must drastically change their belief system (posterior). For scheduled disclosures, Conrad, Cornell, and Landsman (2002) examine the price response to bad and good earnings shocks. They find that the stock market response to negative earnings surprises increases as the relative level of the market rises. Our research builds on the study by Conrad et al. (2002) by examining the PW, a voluntary bad news disclosure, over the business cycle. We compare this impact to those firms that have negative earnings surprises, but choose not to warn shareholders.