Forward-Looking Voluntary Disclosure in Proxy Contests

Using a unique, hand-gathered sample of 893 forward-looking voluntary disclosures by 70 proxy contest firms during 1992–2001, we examine whether managers temporarily alter the frequency and tone of their disclosures during proxy contests. Broadly consistent with the corporate control contest hypothesis, we find that, after controlling for performance and other determinants of disclosure, managers increase the frequency of forward-looking voluntary disclosures during the proxy contest relative to the pre-proxy period. After the proxy contest is resolved, managers decrease forward-looking voluntary disclosures. We also find that, after controlling for earnings-based performance and concurrent period stock returns, the voluntary forward-looking disclosure news is more positive, on average, during proxy contests relative to the pre-contest period. In addition, we find limited evidence that disclosure news is more positive during proxy contests relative to the post-contest period, suggesting that the more positive tone of the disclosures during proxy contests is temporary. Our results are robust to alternative estimation methods that model the endogeneity of the proxy contest event and to controlling for management tenure and turnover. In summary, proxy contest voluntary disclosure behavior is consistent with increased incentives to convince shareholders that managers are in control of the operating environment and to signal that poor past performance is transitory