Saturday, May 28, 2016
Public companies are required to report certain material events within 4 business days on Form 8-K. These events include such matters as the departure of directors or officers, the disposition of assets, or material impairment of assets.
In their paper Strategic Disclosure Misclassification, Andrew Bird, Stephen A. Karolyi, and Paul Ma find that in their 8-K filings, corporate managers seem to be taking a leaf from Roseanne’s bill paying system:
Specifically, Bird et al. find that companies frequently “misfile” their 8-Ks, categorizing them as miscellaneous “other” rather than properly identifying them in the appropriate category. “Misfiling” is particularly likely to occur for negative events, and during periods when investor attention is high - suggesting that misfilings are part of a strategic effort to deflect investor attention. Happily for corporate managers, the strategy is an effective one: misfiled 8-Ks not only receive less traffic, but they also have less stock price impact.
Roseanne would be so proud.