This study investigates the effect of managerial sentiment on corporate disclosure decisions. Using terrorist attacks in the United States as adverse shocks to managerial sentiment, we find that firms located in the metropolitan areas attacked issue more negatively biased earnings forecasts. The effect is stronger for firms with higher operating uncertainty and firms with younger, inexperienced, or less confident executives and it is weaker for firms located in states with increasing violent crime rates. A potential alternative explanation is that managers strategically bias earnings forecasts downward and attribute the poor performance to terrorist attacks. To address this issue, we conduct a battery of additional analyses and find results more consistent with managerial sentiment than strategic attribution. In addition, we show that our results are unlikely to be driven by any economic effects of terrorist attacks. Finally, firms in attacked areas exhibit a more pessimistic tone in 10-K/10-Q filings.

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We exploit the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts to examine the effect of trade secret protection on the amount of firm-specific information incorporated in stock prices, as reflected in stock price synchronicity. We find that after certain state courts recognize the IDD, firms headquartered in those states exhibit a significant increase in stock price synchronicity relative to firms in other states. We also find a significant decrease in the disclosure of proprietary information in the firms' 10-K reports. These results suggest that IDD recognition increases the proprietary cost of disclosure and, in response, corporate managers withhold more information. In addition, we find that the increase in stock price synchronicity and the decrease in the disclosure of proprietary information lead to increases in the firm's market share, cost of equity, and market-to-book ratio, suggesting that managers sacrifice capital market benefits for product market gains. Data Availability: Data used in this study are available from public sources identified in the study.