Hey, what's that over there?
This is basically what
The study, from the University of Notre Dame, examined close to 50,000 non-earnings-related 8-K filings between 2005 and 2018, where the firm also issued a news release on the same day. It found that, alongside 8-K reports featuring negative news, managers tend to push out simpler, unrelated press releases to divert attention from the harder-to-read regulatory filings.
Overall, about 40% of the 8-Ks examined in the study delivered negative news and 33% were accompanied by a same-day, unrelated press release. The study also found managers are more likely to file 8-Ks with negative news during periods with low investor attention, typically on Fridays or after market hours. This behavior slows how quickly the market incorporates the information into the company's stock price and results in fewer people reading the 8-K filing.
The study raised the example of Nuance Communications Inc., a voice recognition technology company. In 2017 the company filed an 8-K disclosing it had terminated an executive vice president. Nuance also issued a news release that day, but this release was about receiving an award from an industry-specific magazine. Rather than elaborating on the information in the 8-K, the researchers said the release was unrelated and presumably issued with the intent to distract investors from the negative information. (Nuance had good news to report a few years later when Microsoft acquired it for $19.7 billion in 2021-2022.)
Companies do this, it seems, because it works, much to the chagrin of the researchers.
"We find it surprising this behavior is so effective," said Jessica Watkins, assistant professor of accountancy in Notre Dame's Mendoza College of Business and one of the study's authors. "Investors should not assume press releases cover all events happening at a company at a given time."
