Does Good News Cover Bad News?

Does good news cover bad news? We show evidence from the Chinese stock market in which the fiscal year of a firm is always the same as the calendar year. Listed firms are required to announce their annual reports by the end of April, the same date of the deadline for announcements of first quarterly reports. We find that firms with low earnings in the previous year are more likely to delay the announcements of annual reports until the announcements of first quarterly reports. They are also more likely to manipulate their earnings in the first quarterly reports to make up good news. Indeed, combined disclosure has higher abnormal returns in short term, thus weakening the market responses of bad news in annual reports.