Mandatory and Voluntary Disclosures: Dynamic Interactions
Posted: 24 Apr 2018 Last revised: 4 Jun 2018
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Mandatory and Voluntary Disclosures: Dynamic Interactions
Mandatory and Voluntary Disclosures: Dynamic Interactions
Date Written: March 31, 2018
Abstract
Firms sometimes obtain soft private information about growth prospects along with hard information about current or past performance. In this environment, we find that optimizing disclosures over multiple periods yields nonlinear stock price reactions following both voluntary and mandatory disclosures. Further, we derive several predictions about distinct short-run and long-run effects of disclosures and nondisclosures on security prices. Under specified conditions, when the volatility of the firm’s earnings increases, the average contemporaneous and prospective post-mandatory disclosure market premia (for voluntary disclosures over nondisclosures) rise, while farther-in-future market discounts (for such voluntary disclosures) also become larger. Our analysis moreover predicts that both the disclosure probability and the information content of nondisclosures can increase in the persistence of earnings.
Keywords: mandatory disclosure, voluntary disclosure, dynamic, multiple periods, growth, signaling, hard and soft information
JEL Classification: D21, D82, D83, G14, M41
Suggested Citation: Suggested Citation