Voluntary Precision Disclosure and Endogenous Market Feedback

39 Pages Posted: 23 Mar 2017 Last revised: 24 May 2021

See all articles by Jan Schneemeier

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: February 16, 2019

Abstract

This paper presents a model in which a manager voluntarily discloses precision information in addition to fundamental information about firm profitability. The firm's stock price guides its real investment decision and the informational content of the price is affected by the voluntary disclosure decision, because informed trading is endogenous. 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 novel 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 )

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Bloomington, IN 47405
United States

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

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