Disclosing a Random Walk
43 Pages Posted: 9 Feb 2022 Last revised: 4 Apr 2023
Date Written: March 14, 2023
We examine a dynamic disclosure model in which the value of a firm follows a random walk. Every period, with some probability, the manager learns the value and decides whether to disclose it. The manager maximizes the market perception of the firm's value, which is based on disclosed information. In equilibrium, the manager follows a threshold strategy with thresholds below current prices. He sometimes reveals pessimistic information that reduces the market perception of the firm's value. He does so to reduce future market's uncertainty, which is valuable even under risk neutrality.
Keywords: Strategic Disclosure
JEL Classification: D21, D82, D83, G12, L11
Suggested Citation: Suggested Citation