How do managers use MD&A disclosures to respond to negative news?

This study investigates whether and how managers respond to major negative news by increasing the information content of their MD&A disclosures. We predict that major negative news influences managers' disclosure decisions by increasing legitimacy pressures and reducing opportunities to obscure information. Based on textual similarity data of financial news, we adopt a new measure to identify explosive negative news and find that managers increase the information content of their MD&A disclosures after major negative news. The relationship between major negative news and MD&A information content is stronger for firms held by the Social Security Fund, in industries with more penalties and for firms with higher analyst coverage. After considering endogeneity, particularly omitted variable bias and self-selection bias, and using different measures of the variables, our conclusions remain robust.