Disclosure Dynamics and Investor Learning

53 Pages Posted: 14 Feb 2017 Last revised: 8 Mar 2020

See all articles by Frank Zhou

Frank Zhou

University of Pennsylvania - The Wharton School

Date Written: February 11, 2017


This paper examines whether investor learning about profitability (i.e., the mean of earnings distribution) leads to persistence in disclosure decisions. A repeated single-period model shows that persistent investor beliefs about profitability lead to persistent disclosure decisions. Using earnings forecast data, I structurally estimate the model and perform several counterfactual analyses. I find that, when investors are assumed to know profitability, the persistence of management forecast decisions significantly declines by 17% to 27%, and 24% of firms would have disclosed differently, resulting in 3.9% net change in the amount of information (i.e., posterior variance) provided to the capital market. Collectively, the results indicate the importance of learning profitability in understanding disclosure decisions and the capital market consequences of disclosures.

Keywords: Persistence of disclosure decisions, Earnings forecasts, Investor learning, Parameter uncertainty, Bayesian estimation, Dynamics of disclosures

JEL Classification: M41, C11, D83

Suggested Citation

Zhou, Frank, Disclosure Dynamics and Investor Learning (February 11, 2017). Available at SSRN: https://ssrn.com/abstract=2916276 or http://dx.doi.org/10.2139/ssrn.2916276

Frank Zhou (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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