Voluntary Disclosure, Price Informativeness, and Efficient Investment

76 Pages Posted: 14 Apr 2020 Last revised: 4 May 2021

See all articles by Matthias Lassak

Matthias Lassak

Frankfurt School of Finance & Management

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

Lassak, Matthias, Voluntary Disclosure, Price Informativeness, and Efficient Investment (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3556575 or http://dx.doi.org/10.2139/ssrn.3556575

Matthias Lassak (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322

HOME PAGE: http://sites.google.com/view/matthiaslassak

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