The Role of Asymmetric Disclosure When Price Efficiency Affects Real Efficiency
46 Pages Posted: 25 Apr 2018 Last revised: 8 Aug 2018
Date Written: August 6, 2018
We examine the effects of asymmetric disclosure of good and bad news on price We examine the effects of asymmetric disclosure of good vs. bad news on price informativeness when prices provide useful information to assist firms’ investment decisions. We find that more timely disclosure of negative news encourages speculators to trade on their private information which in turn improves the efficiency of firms’ investment decisions. We also identify conditions under which the preferences for timely loss disclosure differ between a firm whose objective is to maximize ex ante firm value and a social planner whose objective is to maximize investment efficiency. Our analysis provides an alternative economic explanation for asymmetric timeliness in accounting disclosure.
Keywords: Timely loss recognition; Price informativeness; Feedback effect
JEL Classification: M41, G14, G30
Suggested Citation: Suggested Citation