Good Disclosure, Bad Disclosure

66 Pages Posted: 2 Feb 2014 Last revised: 21 Nov 2017

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: October 1, 2017

Abstract

We study real-efficiency implications of disclosing public information in a model with multiple dimensions of uncertainty where market prices convey information to a real decision maker. Paradoxically, when disclosure is about a variable that the real decision maker cares to learn, disclosure harms price informativeness, and in markets which are effective in aggregating private information, this negative price-informativeness effect can dominate so that better disclosure harms real efficiency. When disclosure is about a variable that the real decision maker already knows much, disclosure always improves price informativeness and real efficiency. Our analysis has important empirical and policy implications for different contexts such as disclosure of stress-test information and regulation of credit ratings.

Keywords: Disclosure, price informativeness, learning, real efficiency

JEL Classification: D61, G14, G30, M41

Suggested Citation

Goldstein, Itay and Yang, Liyan, Good Disclosure, Bad Disclosure (October 1, 2017). Journal of Financial Economics (JFE), Forthcoming; Rotman School of Management Working Paper No. 2388976; AFA 2016 Annual Meetings. Available at SSRN: https://ssrn.com/abstract=2388976 or http://dx.doi.org/10.2139/ssrn.2388976

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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