Strategic Coordination of Good and Bad News Disclosures : The Case of Voluntary Patent Disclosures and Negative Earnings Surprises

Firms enjoy a wide degree of discretion in their disclosure of events in the patent granting process, which investors generally view as "good news" announcements. This study examines the timing of patent disclosure in conjunction with earnings announcements in light of managers' incentives to avoid the stock price-related consequences of earnings disappointments. Among a sample of firms making voluntary patent disclosures, the results suggest that the likelihood of disclosing a patent before a "bad news" earnings announcement increases in the magnitude of the negative earnings surprise. Further, such strategic patent disclosure appears to successfully dampen the market response to the earnings disappointment. Overall, the empirical findings suggest that some firms strategically time the voluntary disclosure of patent-related information in order to manage their short-term stock prices before an adverse information event