We examine whether the managerial withholding of bad news disclosure is, in part, driven by the intense competition from rivals producing similar products and supplying to common corporate customers. Our study exploits the information on customer-supplier relationships to construct firm-specific competition measures that distinguish between competition from existing rivals (i.e., customer-connected peers) and competition from potential rivals (i.e., non-linked peers). Results show that only competitive pressure from connected peers, while not from potential entrants, is strongly and positively associated with firms’ stock price crash risk, a proxy for firm managers’ tendency of withholding bad news. Our key evidence is further substantiated by three quasinatural experiments associated with exogenous shocks arising from M&A activity of customers, peer bankruptcies, and peer location disruptions by natural disasters. Finally, we show that customers, customer-connected peers, and investors play a crucial role in shaping the managerial practice of bad news disclosure.​

Keywords: Peer Competitive threats, Common Customers, Crash Risk, Bad News Disclosure
JEL Classification Number: G11, G23, G32