Silence is Safest: Information Disclosure When the Audience's Preferences are Uncertain
44 Pages Posted: 26 Feb 2018 Last revised: 7 Sep 2021
Date Written: September 1, 2021
Abstract
We examine voluntary disclosure decisions when firms are uncertain about audience preferences and are risk averse. In contrast to classic “unraveling” results, some firms remain silent in equilibrium. Silence is safer than disclosure; silence reduces the sensitivity of a firm’s payoff to audience preferences. Increases in firm (audience) risk-aversion reduce (increase) disclosure. Our model explains why some firms do not disclose earnings breakdowns, executive compensation, or Environmental, Social, and Governance (ESG) performance when they face diverse audiences, and why they disclose less under regulatory rules mandating that disclosure be entirely public.
Keywords: information disclosure, risk aversion, uncertainty, preferences
JEL Classification: D81, D82, D83, G14
Suggested Citation: Suggested Citation