News Release

Companies do not always release important information

Some firms behave unethically by using ambiguous language, selective disclosure

Peer-Reviewed Publication

Wiley

Halifax, Nova Scotia – April 22, 2008 – A new study in the Canadian Journal of Administrative Sciences found that companies that traded their shares on riskier stock exchanges attempted to manage internal trouble by selectively releasing information.

The study, led by Karen Lightstone, PhD, CA, of Saint Mary’s University in Nova Scotia, Canada, focused on companies that had received a cease-trading order (CTO), indicating that the investor could not sell shares and that the company could not issue more shares as a way of raising money.

The analysis examined press releases issued by the companies and reviewed the optimistic language (words such as “new,” “potential,” “satisfied,” and “pleased”) or the factual and forthright information (such as mentioning growing concern issues) that was included. The tone of the press release was categorized into groups such as optimistic, realistic, aggressive, and deceptive.

All of the companies reviewed were going to receive a CTO and thus had the opportunity to disclose this information before it occurred.

However, many of the companies behaved unethically. In some cases, no press releases were issued at all leading up to the CTO. Companies that issued a limited number of press releases included no mention of the CTO. Companies that issued more than four press releases leading up to the CTO appeared to use a variety of strategies to downplay any concerns. In other cases, it appeared the company attempted to convince the reader that the company activities were unaffected by the regulatory warnings or violations. Not surprisingly, disclosure of bad news was often delayed in such cases.

What was particularly interesting was the way that some companies blended optimistic information with bad news, perhaps trying to convey that a CTO was “just another announcement.”

“Our research provides evidence that company managers may behave unethically” the authors conclude. “Investor welfare and ultimately societal well-being are negatively affected by non-transparent disclosure. Shareholders deserve factual, detailed information of company activities.”

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This study is published in the March 2008 issue of the Canadian Journal of Administrative Sciences. Media wishing to receive a PDF of this article may contact journalnews@bos.blackwellpublishing.net.

Karen Lightstone, PhD, CA, is affiliated with St. Mary’s University in Nova Scotia and can be reached for questions at karen.lightstone@smu.ca.

The Canadian Journal of Administrative Sciences (CJAS) is a multidisciplinary, peer-reviewed, international quarterly that publishes manuscripts with a strong theoretical foundation. The journal welcomes literature reviews, quantitative and qualitative studies as well as conceptual pieces. CJAS is an ISI-listed journal that publishes papers in all key disciplines of business. CJAS is a particularly suitable home for manuscripts of a cross disciplinary nature.

Wiley-Blackwell was formed in February 2007 as a result of the acquisition of Blackwell Publishing Ltd. by John Wiley & Sons, Inc., and its merger with Wiley’s Scientific, Technical, and Medical business. Together, the companies have created a global publishing business with deep strength in every major academic and professional field. Wiley-Blackwell publishes approximately 1,400 scholarly peer-reviewed journals and an extensive collection of books with global appeal. For more information on Wiley-Blackwell, please visit www.blackwellpublishing.com or http://interscience.wiley.com.


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