Investigating the Effect of Withholding Strategy of Bad News on Shareholders’ Satisfaction

Document Type : Research Paper


1 Ph.D. Candidate, Department of Accounting, Faculty of Accounting and Management, Rasht Branch, Islamic Azad University, Rasht, Iran

2 Associate Prof., Department of Accounting, Payame Noor University, Rasht, Iran.

3 Assistant Prof., Department of Business Management, Rasht branch, Islamic Azad University, Rasht, Iran

4 Assistant Prof., Department of Management, Faculty of Literature and Human Sciences, University of Guilan, Rasht, Iran


Objective: According to the prospectus of Iran's Capital Market, this market can be turned into an Islamic finance center in the Middle East. This requires to protect investors’ right through organizing, maintaining and developing a transparent, fair and efficient market for a variety of different types of securities. Transparency and reduction of asymmetry reduce risk in the capital market and increase investor attraction to this market. For this purpose, present research investigates the information asymmetry generated by companies bad news withholding and its role in shareholders’ satisfaction.
Methods: In this research, abnormal stock return rate before and after the general meeting date has been used to examine the Information Asymmetry. Trading value and open trading days have also been used as indicators to measure the shareholders’ satisfaction. To achieve the research goal, 123 companies listed in the Tehran Stock Exchange during the period from 2011 to 2016 were selected and a panel data approach was used to test the research of hypotheses.
Results: Findings do not show a significant relationship between withholding strategy of bad news and the trading value, but there is a significant negative relationship between the withholding strategy of bad news and the open trading days.
Conclusion: Therefore, it is predicted that due to the use of this strategy by the companies, stockholders satisfaction level decreased and in the long run, it causes serious damage to the interests of all involved groups.


Aghabeikzadeh, M., Foroghi, D., Dastgir, M. (2017). The Effect of Conservatism and Delay in Simultaneous News Disclosure of Interim Earnings and Annual Earnings Forecast on Stock Market Reaction. Journal of Accounting and Auditing Review, 24(2), 173-196.
(in Persian)
Anifowose, M. (2012). Information Asymmetric Effect on the Stock Return Volatility in Nigerian Capital Market. Accounting Frontier, 14(2), 47-64.
Athanasakou, V. E., Strong, N. C., & Walker, M. (2016). Asymmetric information flows.‏ Available at SSRN: =2799681.
 Badavar Nahandi, Y., Taghizadeh Khanqh, V. (2017). The Effect of Dividend Payments and Bad News Hoarding on Stock Price Crash Risk with an Emphasis on Information Asymmetry. Journal of Accounting and Auditing Review, 24(1), 19-40. (in Persian)
Bao, D., Kim, Y., Mian, G. M., & Su, L. (2018). Do managers disclose or withhold bad news? Evidence from short interest. The Accounting Review, Available at SSRN:
Bhaumik, S., Karanasos, M., & Kartsaklas, A. (2016). The informative role of trading volume in an expanding spot and futures market. Journal of Multinational Financial Management, 35, 24-40.‏
Billett, M. T., Garfinkel, J. A., & Yu, M. (2017). The effect of asymmetric information on product market outcomes. Journal of Financial Economics, 123(2), 357-376.
Bloom, B. A., Jackson, L. A. (2016). Abnormal stock returns and volume activity surrounding lodging firms' CEO transition announcements. Tourism Economics, 22(1), 141-161.‏
Borovkova, S., Xiaobo, D. (2015). News Sentiment, Factor Models and Abnormal Stock Returns. Available at SSRN: https: // =2695360.
Chen, Z., & Daigler, R. T. (2008). An examination of the complementary volume–volatility information theories. Journal of Futures Markets: Futures, Options, and Other Derivative Products, 28(10), 963-992.
Copeland, T. E. (1976). A model of asset trading under the assumption of sequential information arrival. The Journal of Finance, 31(4), 1149-1168.
Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. The journal of Finance, 46(4), 1325-1359.
Dye, R. A. (1986). Proprietary and nonproprietary disclosures. Journal of business, 331-366.
Fahimi Dawab, R. (2005). Investigating the Importance of Factors Affecting the Behavior of Common Stock Investors in Mashhad Stock Exchange and its Comparative Comparison with the Investors' attitudes in Tehran Stock Exchange, Master's thesis, Faculty of Economics and Social Sciences, Alzahra University. (in Persian)
Fuchs, W., Öry, A. & Skrzypacz, A. (2016). Transparency and distressed sales under asymmetric information. Theoretical Economics, 11(3), 1103-1144.
Ge, R., Lennox, C. (2011). Do acquirers disclose good news or withhold bad news when they finance their acquisitions using equity? Review of Accounting Studies, 16(1), 183-217.‏
Ghaemi, M., Taghizadeh, M. (2016). Studying the effect of information risk and transaction costs on stock market reaction to earnings news. Journal of Accounting and Auditing Review, 23(2), 235-252. (in Persian)
Gong, G., Louis, H., & Sun, A. X. (2008). Earnings management, lawsuits, and stock-for-stock acquirers’ market performance. Journal of Accounting and Economics, 46(1), 62-77.
Hackenbrack, K. E., Jenkins, N. T. & Pevzner, M. (2014). Relevant but delayed information in negotiated audit fees. Auditing: A Journal of Practice & Theory, 33(4), 95-117.‏
He, H., & Wang, J. (1995). Differential information and dynamic behavior of stock trading volume. The Review of Financial Studies, 8(4), 919-972.
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of accounting and economics, 31(1-3), 405-440.
Heidari, M., Qaderi, B. & Rasouli, P. (2016). The Effect of Audit Quality on Agency Costs and Information Asymmetry: Structural Equation Modeling Approach. Journal of Accounting and Auditing Review, 23(3), 353-372. (in Persian)
Hoberg, G., Lewis, C. (2017). Do fraudulent firms produce abnormal disclosure? Journal of Corporate Finance, 43, 58-85.‏
Kasznik, R., & Lev, B. (1995). To warn or not to warn: Management disclosures in the face of an earnings surprise. Accounting review, 113-134.
Kothari, S. P., Shu, S., & Wysocki, P. D. (2009). Do managers withhold bad news?. Journal of Accounting Research, 47(1), 241-276.
Lansford, B. (2006). Strategic Coordination of Good and Bad News Disclosures: The Case of Voluntary Patent Disclosures and Negative Earnings Surprises, Available at SSRN: =830705.
Liu, H., Wang, Y. (2016). Market making with asymmetric information and inventory risk. Journal of Economic Theory, 163, 73-109.
Lof, M., van Bommel, J. (2018). Asymmetric Information and the Distribution of Trading Volume. Bank of Finland Research Discussion Paper No. 1/2018. Available at SSRN:
Moradzadeh Fard, M., Aboohamzeh, M. (2011). The Effect of the Quality of Corporate Disclosure on Stock Liquidity by Tehran Stock Exchange (TSE) listed Companies. Empirical Studies in Financial Accounting, 8(32), 73-102. (in Persian)
Mousavi Shiri, S., Khalat Barri, H. & Firouz Bakht, M. (2015). The effect of information asymmetry on stock price overview. Financial Accounting Research and Audit, 7 (27), 73-92. (in Persian)
Naderi, K., Hosseini, S. (2015). The Impact of Protecting the rights of Small Shareholders on the Market Value of the Capital Markets of the Selected Countries by Using the Data Panel Methodology, Recommendations for the Laws and Regulations of the Iranian Capital Market. Two Quarterly Journal of Islamic Financial Research, 4 (2), 159-186.
(in Persian)
Rahnama Roodposhti, F., Taghipourian, Y. & Azadian, Y. (2010). Evaluation of Factors Affecting Investors' Satisfaction with the Financial Reporting Content of Companies Listed in the Stock Exchange Using Fuzzy Approach. Journal of Financial Engineering and Portfolio Management, 2, 67-98. (in Persian)
Rostami Norouzabad, M., Sedaghat, P., Habibi, F. (2013). Investigating the Factors Affecting Investors' Behavior in the Reality Investment Income (Case Study of Investors of Tehran Stock Exchange). Financial Management Perspective, 5(10), 69-94. (in Persian)
Shim, G. Y., Lee, S. H., & Kim, Y. M. (2008). How investor behavioral factors influence investment satisfaction, trust in Investment Company and reinvestment intention. Journal of Business Research, 61(1), 47-55.‏
Skinner, D. J. (1994). Why firms voluntarily disclose bad news. Journal of accounting research, 32(1), 38-60.
Slim, S., & Dahmene, M. (2016). Asymmetric information, volatility components and the volume–volatility relationship for the CAC40 stocks. Global Finance Journal, 29, 70-84.‏
Venkatesh, P. C., & Chiang, R. (1986). Information Asymmetry and the Dealer's Bid‐Ask Spread: A Case Study of Earnings and Dividend Announcements. The Journal of Finance, 41(5), 1089-1102.‏
Verrecchia, R. E. (2001). Essays on disclosure. Journal of accounting and economics, 32(1-3), 97-180.