Terrorist Attacks, Managerial Sentiment, and Corporate Disclosures

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 attacked metropolitan areas issue more negatively biased earnings forecasts. The effect is stronger when 1) firms face high operating risks, 2) firms have inexperienced and less confident CEOs, and 3) explosive weapons are used in the attacks. In addition, affected firms shorten forecast horizons as pessimistic sentiment induces the appraisal of uncertainty. Finally, firms in the attacked areas exhibit a more pessimistic tone in their 10-K/10-Q filings. Our main findings are robust to the exclusion of 9/11 attacks and a battery of robustness tests.