Divisional Managers and Corporate Disclosure Quality

Using a large sample of U.S. firms, we study the role of divisional managers in corporate disclosure quality. We find that when a company’s divisional managers have previously worked with the CEO or CFO at other companies, in other words, they have co-working experience, the company produces more accurate management earnings forecasts, experiences lower future stock price crash risks, and engages in less accrual-based earnings management, consistent with the notion that co-working experience facilitates internal communication, which in turn improves external disclosure quality. Moreover, the information-enhancing role of the coworking experience is more pronounced for firms with greater organizational complexity, more opaque internal information environments, and CEOs or CFOs who are relatively new to their positions. Overall, our results provide new insight into the role of divisional managers in shaping corporate disclosure and transparency.