Should I Stay or Should I Grow? Using Voluntary Disclosure to Elicit Market Feedback

Review of Financial Studies, Forthcoming

53 Pages Posted: 16 Sep 2019

See all articles by Sudarshan Jayaraman

Sudarshan Jayaraman

University of Rochester - Simon Business School; Simon Business School, University of Rochester

Joanna S. Wu

University of Rochester - Simon Business School

Date Written: September 6, 2019

Abstract

We explore the use of voluntary disclosure by managers to solicit market-feedback. Using managerial capital expenditure forecasts, we find that managers adjust annual capital expenditures upward (downward) in response to positive (negative) stock market reactions to capital expenditure forecasts, but only for those forecast announcements that stimulate rather than discourage informed trading. These capex adjustments motivated by market feedback correlate with higher future performance and are stronger (weaker) when outsiders (managers) are more informed. Finally, we show that managers are more likely to issue and learn from capex forecasts when pre-disclosure stock prices are affected by transitory non-fundamental shocks.

Suggested Citation

Jayaraman, Sudarshan and Jayaraman, Sudarshan and Wu, Joanna Shuang, Should I Stay or Should I Grow? Using Voluntary Disclosure to Elicit Market Feedback (September 6, 2019). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3449279

Sudarshan Jayaraman (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Joanna Shuang Wu

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160D
Rochester, NY 14627
United States
585-275-5468 (Phone)
585-442-6323 (Fax)

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