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Disclosing a Random Walk

Author

Listed:
  • ILAN KREMER
  • AMNON SCHREIBER
  • ANDRZEJ SKRZYPACZ

Abstract

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 firm's 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 uncertainty, which is valuable even under risk‐neutrality.

Suggested Citation

  • Ilan Kremer & Amnon Schreiber & Andrzej Skrzypacz, 2024. "Disclosing a Random Walk," Journal of Finance, American Finance Association, vol. 79(2), pages 1123-1146, April.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:2:p:1123-1146
    DOI: 10.1111/jofi.13290
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    References listed on IDEAS

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