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Voluntary disclosure with evolving news

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  • Aghamolla, Cyrus
  • An, Byeong-Je

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.

Suggested Citation

  • Aghamolla, Cyrus & An, Byeong-Je, 2021. "Voluntary disclosure with evolving news," Journal of Financial Economics, Elsevier, vol. 140(1), pages 21-53.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:1:p:21-53
    DOI: 10.1016/j.jfineco.2020.11.004
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    References listed on IDEAS

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    Cited by:

    1. Cyrus Aghamolla & Carlos Corona & Ronghuo Zheng, 2021. "No reliance on guidance: counter‐signaling in management forecasts," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 207-245, March.
    2. You, Linqing & Chen, Zhuoqiong, 2022. "A theory of firm opacity and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 145(C).
    3. Bertomeu, Jeremy, 2023. "Managers’ choice of disclosure complexity," Journal of Accounting and Economics, Elsevier, vol. 76(2).
    4. Aghamolla, Cyrus & Smith, Kevin, 2023. "Strategic complexity in disclosure," Journal of Accounting and Economics, Elsevier, vol. 76(2).
    5. Elizabeth Blankespoor & Bradley E. Hendricks & Joseph Piotroski & Christina Synn, 2022. "Real-time revenue and firm disclosure," Review of Accounting Studies, Springer, vol. 27(3), pages 1079-1116, September.

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    More about this item

    Keywords

    Voluntary disclosure; Evolving information; Dynamic disclosure; Communication; Price drop; Return skewness;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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