Thursday, March 11, 2021

Firms are less likely to share bad news when privately meeting with larger groups of investors, according to an award-winning study from the University of Iowa.

The study finds that the managers and investor relations officials who present to larger groups are more focused on themselves and their presentation, decreasing their willingness to share bad news because of heightened self-awareness.

Michael Durney, assistant professor of accounting in the Tippie College of Business, says his evidence indicates this is not intentional or malicious. He cites prior studies that demonstrate people are subconsciously more self-focused when meeting with larger groups because they can’t visualize individuals within the group. Psychology research shows that in meetings where individuals can be more easily identified, speakers are more likely to be open and honest, especially with bad news.

Unfortunately, Durney notes this subconscious reluctance has an impact on financial markets, as not all investors can participate in these investor conferences, roadshows, phone calls, and other private meetings. If managers unintentionally withhold bad news when talking to larger groups, then investors with more private access to management are making decisions with more information than investors without such access.

Durney says such an unlevel playing field goes against the spirit of financial regulation and prompts further consideration of recent calls to prohibit private meetings between investors and managers altogether.

In his study, Durney conducted an experiment with 328 experienced corporate managers and put them in simulated situations where they decided whether to privately discuss sales reports of a hypothetical company. In some cases, they were meeting with a single fictitious investor, in others it was a group of 10. When the sales news was bad, the managers were consistently less likely to share it with the large group than they were with the single investor.

However, when given identifying information about the fictitious investors in the large group, such as names or photos, managers were more likely to share bad news about sales. Durney says this supports psychological research that shows people are more comfortable talking with large groups if they have a better sense of their audience.

Durney also surveyed an additional 114 investor relations officers about their experiences in private meetings with investors. The results both supported his experiment findings and showed they likely aren’t even aware of their reluctance to share bad news.

Durney’s study, “The Effect of Audience Size on Managers’ Private Disclosures,” received the 2020 Outstanding Dissertation Award from the Accounting, Behavior, and Organization section of the American Accounting Association.


Media contact: Tom Snee,, 319-541-8434