Abstract

Our paper examines when firms in an industry will collectively withhold industry-wide bad news, which is different from the type of news that traditional models consider. Using a strategic game framework, we predict that capital market pressure and externality costs associated with being the second mover to disclose could make cooperative withholding a difficult equilibrium to attain. Cooperative withholding is possible, but whether it is achievable depends on the structure of the industry, the nature of industry news, and the extent to which these factors are common knowledge. We empirically document cases of increased intra-industry opacity in annual 10-Ks, controlling for changes in firm fundamentals including complexity. Strategic withholding is more likely in industries with greater negative tailrisk, greater equity incentives, and industry trade associations that foster interpersonal connections. The results have implications for understanding when economic forces are sufficient to generate voluntary disclosure of industry-wide adverse conditions.