Strategic disclosure timing and insider trading

I examine whether managers strategically disclose negative news for their own benefit. Exploiting the SEC requirement that managers must disclose certain material corporate events within five business days, I find they disclose negative events disproportionately on Fridays, before national holidays, and after the market closes - when investors are more distracted - despite these events occurring uniformly across days. This pattern is absent for non-negative events. Strategic disclosure timing is concentrated among smaller firms that have more retail investors and lower analyst coverage. I find a significant return under-reaction following negative Friday disclosures that persists for approximately three weeks, but no under-reaction for other days of the week. Managers exploit the return under-reaction to benefit their insider trading. Disclosure of negative news on a Friday is twice as likely if a manager sells shares in the weeks following the event. Google searches and trading volume provide corroborating evidence that investors are more distracted on Fridays. These results are consistent with managers undertaking strategic actions to exploit the behavior of investors in the market.