Blame Attribution and Disclosure Propensity

At a Glance

• Firms routinely withhold information about negative events they caused. Among 383 material negative events — including catastrophes, casualty accidents, oil spills, and investor lawsuits — companies were approximately four times less likely to disclose information following an event for which the firm was likely to be blamed than a similar blameless event.
• Blame attribution, not just bad news, drives the decision to stay silent. Prior research focused on managers’ career concerns as the main reason firms suppress bad news; this study shows that the nature of the event itself — specifically, who is at fault — provides a distinct and incremental explanation for non-disclosure.
• Disclosure after a blamed event causes real damage to the firm. Firms that chose to disclose information following a blamed event experienced greater reputational declines and higher litigation costs than firms that stayed quiet, validating why silence is so attractive when fault lies with management.
• Blameless events follow a different playbook entirely. When an external force, such as a hurricane or weather event, is clearly responsible, firms face no such disclosure penalty — disclosing after a blameless event is not associated with reputation harm or elevated litigation costs.
• The findings carry direct implications for accounting, law, and disclosure policy. Because firms systematically underreport events they caused, analysts, regulators, and investors relying on company filings or press releases see only a curated subset of the economic events firms experience.

Read on for a full breakdown of the research findings and their implications for regulators, auditors, investors, and boards.

When a natural disaster disrupts a company’s operations, the firm typically says so publicly. When an equipment failure or human error causes comparable damage, that same firm often says nothing. This asymmetry — transparent disclosure after external misfortune, silence after internal fault — is the central puzzle that “Blame Attribution and Disclosure Propensity” sets out to explain.

A long-standing literature shows that firm characteristics such as size, litigation risk, and analyst coverage shape disclosure decisions. Comparatively little attention has been paid to characteristics of the event itself. This paper argues that one event characteristic in particular — whether the firm is likely to be perceived as responsible — has a powerful and underappreciated effect on whether any disclosure occurs at all.

The study draws on blame attribution theory from social psychology, which holds that individuals assign responsibility for negative events either to internal forces or to external ones, but not both. Applied to corporate behavior: when an event is caused by internal forces (human error, equipment failure, managerial misjudgment), the firm bears blame and risks reputational damage and litigation if it says too much. When an external force is clearly at fault, the incentive to stay silent disappears.

To test this directly, the authors compiled 383 material negative events between 2001 and 2013 — drawn from National Weather Service records, NTSB accident reports, Bureau of Safety and Environmental Enforcement spill data, and the Stanford Securities Class Action Clearinghouse — and manually tracked which firms issued event-specific disclosures within the following 30 and 90 days. This “outside-in” approach sidesteps the usual problem of observational bias: since the events are identified from public sources independent of company filings, the researchers can see both what firms disclosed and what they chose not to disclose.

The results are striking. Overall, only 35 percent of the 383 events were associated with firm disclosure within 30 days, and 50 percent within 90 days. But the gap between blamed and blameless events is enormous: the average disclosure rate is 48 percent for blameless events versus 19 percent for blamed events in the 30-day window, and 67 percent versus 28 percent within 90 days. In multivariate tests controlling for 25 firm characteristics, four measures of event materiality, and industry and year fixed effects, firms are at least four times less likely to disclose information about a blamed event than a comparable blameless event.

Importantly, including event materiality measures — cumulative stock return around the event, implied volatility changes, media coverage volume, and media sentiment — improves model explanatory power by 18 percent over firm characteristics alone. Adding blame attribution on top of that improves explanatory power by a further 25 percent, underscoring how much information is contained in the simple question of whether the firm is at fault.

To confirm the mechanism, the authors also examine what happens to firms that do disclose after a blamed event. Using the Fortune Most Admired Companies score and the RavenPack Event Sentiment Score to proxy for reputation, and lawsuit duration and settlement amount to proxy for litigation costs, they find that disclosing firms suffer meaningfully larger reputation declines and higher litigation costs following blamed events than non-disclosing firms. For blameless events, disclosure imposes no such penalty. This is consistent with the core argument: firms suppress blamed-event disclosures precisely because disclosure makes things worse.

A natural alternative explanation is that manager career concerns — not event characteristics — drive silence. Managers with longer tenures and less to lose from termination might be more willing to disclose bad news. The paper addresses this directly, finding that blame attribution provides incremental explanatory power over CEO tenure, CEO-firm tenure, and CEO age. Both mechanisms appear to be at work, but they operate independently and through different channels: career concerns reflect a misalignment between manager and firm interests, while blame attribution reflects an alignment — both manager and firm prefer silence when blame and its costs fall on the organization.

These findings have practical implications that extend well beyond disclosure theory. For analysts and investors, they suggest that event-driven searches of SEC filings and press releases will systematically miss events where the firm was at fault. For regulators, they challenge a central assumption — that reporting obligations ensure timely disclosure of material negative events — by showing that ambiguity in materiality standards creates meaningful room for strategic silence. For auditors and boards, they raise the question of whether firms have adequate protocols for self-reporting incidents that are legally and reputationally costly to acknowledge.

Read the full paper: Blame Attribution and Disclosure Propensity