Voluntary Disclosure, Price Informativeness, and Efficient Investment
76 Pages Posted: 14 Apr 2020 Last revised: 4 May 2021
Date Written: March 15, 2021
I analyze a manager’s decision to disclose private information when the stock market is a source of information for corporate investment-making. A proﬁt-maximizing manager discloses her private information only if it crowds-in informed trading of ﬁrm-outsiders and increases the manager’s ability to learn from the market. However, this ex-post disclosing behavior results in an unintended consequence: voluntary disclosure reduces informed trading in situations where the manager does not disclose. The eﬃciency loss after nondisclosure may dominate, implying that voluntary disclosure may be a source of ineﬃcient investment-making through distorting market feedback. The model’s main prediction is that disclosing ﬁrms negatively aﬀect price informativeness
in nondisclosing ﬁrms’ stock prices.
Keywords: Voluntary Disclosure, Price Informativeness, Investment Eﬃciency, No News Is Bad News
JEL Classification: D82, G14, G31, M41
Suggested Citation: Suggested Citation