Disclosure specificity: Evidence from book-to-bill ratios

We investigate whether managers vary disclosure specificity strategically, by examining how the voluntary disclosure of a key performance indicator, the book-to-bill (BTB) ratio (the ratio of orders received to orders billed), varies with future firm performance. Consistent with theoretical predictions from prior research, we find that managers are more likely to provide precise BTB disclosures when the news is positive, while offering less precise disclosures when the news is negative. We find that managers strategically vary specificity more when valuation incentives are higher and monitoring is lower. We find that the tone of qualitative descriptions is informative, with or without precise disclosure, inconsistent with the predictions of strategic withholding models. Our results are consistent with persuasion models in which managers vary the specificity of news strategically, to affect the weight stakeholders place on the signal.