Sequential Reporting Bias
Firms with correlated fundamentals often issue reports sequentially, leading to information spillovers. The theoretical literature has investigated multi-firm reporting, but only when firms report simultaneously. We examine the implications of sequential reporting, where firms aim to maximize their market price and can manipulate their reports. Our model demonstrates that the introduction of sequentiality in the presence of information spillovers significantly alters the biasing behavior of firms and the resulting informational environment relative to simultaneous reporting. In particular, a lead firm always manipulates more when reports are issued sequentially. Interestingly, this occurs because follower firms, who benefit from information spillovers, place less weight on their own private information when issuing a report. This information loss leads the market to place greater weight on the leader’s report, which increases the incentive of the lead manager to manipulate her report. Moreover, the information loss from sequentiality leads to less efficient and less volatile prices. Additionally, we find that stronger correlation in firm fundamentals can amplify the lead firm’s incentive for manipulation under sequentiality, in contrast to simultaneous reporting. We offer additional results regarding, for example, market response coefficients, and provide a number of empirical implications.
Disclosure, information spillovers, reporting, manipulation, bias