Poor performance and the value of corporate honesty

We examine a sample of companies that make announcements attributing blame for recent poor performance to either themselves or an external factor. We find that both groups of companies exhibit poor company-specific performance prior to the announcement, indicating that companies blaming external factors are not being truthful. Following the announcement, companies that blame themselves begin to perform better while those that blame others continue their weak performance. We find no differences in the financial and governance characteristics of these companies. Companies that blame themselves, however, provide more detailed information about the source of the problem, while those that blame others offer only vague generalizations. Our results suggest that managerial honesty and forthrightness have value to shareholders since they imply that the company is more likely to make the corrections necessary to achieve stronger future performance. •Firms that blame themselves for poor idiosyncratic performance begin to perform better.•Firms that blame others continue to perform badly.•The two sets of firms are not statistically different on various measures.•Self-blamers reveal the source of the problem, while those that blame others do not.•Accepting blame for poor firm-specific performance is highly valued by investors.