Disclosure Processing Costs, Investors’ Information Choice, and Equity Market Outcomes: A Review

124 Pages Posted: 20 Sep 2019 Last revised: 15 Sep 2020

See all articles by Elizabeth Blankespoor

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business

Ed deHaan

University of Washington - Michael G. Foster School of Business

Ivan Marinovic

Graduate School of Business, Stanford University

Date Written: September 14, 2020

Abstract

This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes. The existence of disclosure processing costs means that disclosures are not “public” information as traditionally defined, but instead can be a form of costly private information. Conceptualizing disclosures as private information makes it clear that learning from disclosures is an active economic choice and that disclosure pricing cannot be perfectly efficient. We review the analytical and empirical literature on sources of processing costs and how these costs affect equity market outcomes, primarily within rational equilibria. We also discuss studies of the feedback effects of investors’ processing costs on managers’ choices about disclosure and corporate actions. We conclude that disclosure processing costs have implications for a wide array of accounting research and phenomena, but we are only just beginning to understand their effects.

Keywords: disclosure processing costs, limited attention, disclosure pricing, information awareness, information acquisition, information integration

JEL Classification: D82, D83, G12, G14, M41, M48

Suggested Citation

Blankespoor, Elizabeth and deHaan, Ed and Marinovic, Ivan, Disclosure Processing Costs, Investors’ Information Choice, and Equity Market Outcomes: A Review (September 14, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3449751 or http://dx.doi.org/10.2139/ssrn.3449751

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Ed DeHaan (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Ivan Marinovic

Graduate School of Business, Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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