STRATEGIC BUNDLING OF GOOD AND BAD NEWS: THE CASE OF VOLUNTARY PATENT DISCLOSURES AND NEGATIVE EARNINGS SURPRISES

Firms enjoy wide discretion in their disclosure of patent-related events, which investors generally view as "good news" announcements. This study examines patent disclosure behavior before earnings announcements in light of managers incentives to avoid the stock price-related consequences of earnings disappointments. The results suggest that for a sample predominately composed of small-cap, high-tech firms, the likelihood of disclosing a patent strategically before an impending negative earnings surprise 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 announcement. Overall, the empirical findings suggest that some firms engage in the strategic voluntary disclosure of proprietary information in order to manage their short-term stock prices before a mandatory adverse information event.