Optimal Firm (Non-)Disclosure

23 Pages Posted: 5 Feb 2016

See all articles by Patrick Hummel

Patrick Hummel

Google Inc.

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Phillip C. Stocken

Dartmouth College - Tuck School of Business

Date Written: January 16, 2016


We re-examine the seminal persuasion model of Dye (1985), focusing on the contracting power of current shareholders. Current shareholders determine the disclosure policy of a manager, who may be informed about the firm's value. Current shareholders desire higher future stock prices and dislike volatility. We show that the optimal policy is complete non-disclosure. The key intuition is that the disclosure policy cannot affect the expected future stock price, but can affect price volatility, which is minimized under non-disclosure. Our results extend to cheap talk settings and Bayesian persuasion games.

Keywords: Optimal contracts, disclosure policy, commitment

JEL Classification: C72, D80, D83

Suggested Citation

Hummel, Patrick and Morgan, John and Stocken, Phillip C., Optimal Firm (Non-)Disclosure (January 16, 2016). Tuck School of Business Working Paper No. 2727737. Available at SSRN: https://ssrn.com/abstract=2727737 or http://dx.doi.org/10.2139/ssrn.2727737

Patrick Hummel

Google Inc. ( email )

1600 Amphitheatre Parkway
Second Floor
Mountain View, CA 94043
United States

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

Phillip C. Stocken (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603-646-2843 (Phone)

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