Voluntary Disclosure with Evolving News

65 Pages Posted: 20 Apr 2020 Last revised: 22 Oct 2020

See all articles by Cyrus Aghamolla

Cyrus Aghamolla

University of Minnesota - Twin Cities

Byeong-Je An

Nanyang Technological University (NTU) - Division of Banking & Finance

Date Written: March 21, 2020

Abstract

We study a dynamic voluntary disclosure setting where the manager's information and the firm's value evolve over time. The manager is not limited in her disclosure opportunities but disclosure is costly. The results show that the manager discloses even if this leads to a price decrease in the current period. The manager absorbs this price drop in order to increase her option value of withholding disclosure in the future. That is, by disclosing today the manager can improve her continuation value. The results provide a number of novel empirical predictions regarding asset prices and disclosure patterns over time. These include, among others, that disclosures are negatively correlated in time, and stock return skewness is negatively correlated with lagged returns for firms with low uncertainty over their future profitability, in more competitive industries, and in industries with less informative public news.

Keywords: Voluntary disclosure, evolving information, dynamic disclosure, communication, return skewness.

JEL Classification: C73, D83, G12, G14.

Suggested Citation

Aghamolla, Cyrus and An, Byeong-Je, Voluntary Disclosure with Evolving News (March 21, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3566098

Cyrus Aghamolla (Contact Author)

University of Minnesota - Twin Cities ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Byeong-Je An

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1a-05 Nanyang Avenue
Singapore, 639798
Singapore

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