Disclosing to Conceal: Impeding Competitor Learning from the Stock Market

29 Pages Posted: 16 Sep 2019

See all articles by Anil Arya

Anil Arya

Ohio State University (OSU) - Fisher College of Business

Ram Ramanan

SUNY at Binghamton - School of Management

Date Written: September 6, 2019

Abstract

A firm’s stock price may reveal information that the firm itself might not want to share. In particular, stock price may reveal information about future demand, which when learned by a rival undercuts the firm’s competitive position. This paper establishes that when a firm discloses cost information it can confound decision-relevant demand information embedded in the stock price that a rival can otherwise extract. With stock price valuing firm profit (not cost and revenue separately), a disconnect is introduced between the firm’s actions and its intent – it discloses more on one dimension when its intent is to conceal on another. Consequently, a firm’s disclosure must be made strategically accounting for both direct communication as well as indirect information transmission via its stock price. From the firm’s perspective, the “competitive upside” from disclosing to keep the rival in the dark about market demand is evaluated against the “valuation downside” from disclosing more unfavorable cost information.

Keywords: Competition; Financial Experts; Stock price Informativeness; Voluntary Disclosures

Suggested Citation

Arya, Anil and Ramanan, Ram, Disclosing to Conceal: Impeding Competitor Learning from the Stock Market (September 6, 2019). Available at SSRN: https://ssrn.com/abstract=3449544 or http://dx.doi.org/10.2139/ssrn.3449544

Anil Arya

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Ram Ramanan (Contact Author)

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

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