Voluntary Precision Disclosure and Endogenous Market Feedback

48 Pages Posted: 23 Mar 2017 Last revised: 21 Jun 2022

See all articles by Jan Schneemeier

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: February 16, 2019

Abstract

We explore a manager's incentives to disclose the precision of a signal about firm profitability. Voluntary disclosure of precision information encourages traders to acquire private information and thus increases the informational content of the stock price, which guides the firm's real investment decision. We highlight a novel trade-off: on the one hand, more precise public information crowds out traders' private information acquisition because it levels the playing-field. On the other hand, there can also be a crowding-in effect because high-precision disclosures indicate greater managerial confidence and thus higher investment, which increases the traders' value of private information. For positive fundamental information, the net effect is ambiguous, for negative information the crowding-out effect dominates.

Keywords: precision information, voluntary disclosure, information acquisition, market feedback

JEL Classification: D82, G14, M41

Suggested Citation

Schneemeier, Jan, Voluntary Precision Disclosure and Endogenous Market Feedback (February 16, 2019). Available at SSRN: https://ssrn.com/abstract=2938045 or http://dx.doi.org/10.2139/ssrn.2938045

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

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