Do Managers Strategically Time Investor Mood? Evidence of Releasing Bad News on Sunny Days

Abstract

This paper explores whether managers strategically time the dissemination of bad news on sunny days to leverage positive investor mood. Our empirical evidence suggests that managers are more likely to announce bad news on sunny days and tend to reschedule bad news earnings announcements from cloudy days to sunny days when accurate weather forecasts are available. Further analysis shows a weaker short-term market reaction and a stronger post-earnings announcement drift for firms announcing bad news on sunny days rather than non-sunny days. In addition, we find that this strategic disclosure of bad news is not motivated by insider selling, but is more likely to be driven by firms’ fear of high litigation risks. Considering the benefit and cost of applying the mood-timing strategy, our cross-sectional tests show that managers are more likely to announce bad news on sunny days when the market sentiment is low, when the firm does not follow a routine pattern to release its earnings announcement, and when there are fewer sunny days around the EAD. In summary, our findings suggest that managers consider investor mood in their information dissemination strategies and that litigation concerns are the main driver behind the strategic release of bad news on sunny days.