Strategic Nondisclosure and Market Feedback

Abstract

Classical disclosure theories argue that firms that are perceived to strategically withhold information suffer from negative capital market consequences. We revisit this prediction for the case of managerial CAPEX guidance, a disclosure item which recent studies have associated with a firm's desire to stimulate market feedback. Our results indicate that the perception of nondisclosure of CAPEX guidance being strategic is not associated with differences in abnormal returns. Investors still seem to take notice by asking more CAPEX-related questions in conference calls, and by reducing their extent of informed trading. In addition, strategically nondisclosing firms rely less on their own market price, more on internal information, and more on information incorporated in peer market prices in guiding their investment decision. Our results provide new insights on the association of strategic nondisclosure, market feedback, and firm outcomes.

Keywords: Voluntary Disclosure, Feedback Disclosure, Unexpected Nondisclosure, Informed Trading, Real Effects

JEL Classification: D82, G14, G31, M41