Endogenous Information Flows and the Clustering of Announcements
Viral V. Acharya
New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance
Peter M. DeMarzo
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Stanford Graduate School of Business
September 1, 2008
Rock Center for Corporate Governance Working Paper No. 17
We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.
Number of Pages in PDF File: 42
Keywords: disclosure, disclosure dynamics, strategic disclosure, disclosure timing, earnings announcement, stochastic volatility, skewness
JEL Classification: G14, G30, D82, M41, M45working papers series
Date posted: September 29, 2008 ; Last revised: September 29, 2009
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