Uncertainty about managerial horizon and voluntary disclosure

I examine the relation between investors’ uncertainty about managerial horizon and corporate voluntary disclosure. I argue that investors’ uncertainty about the manager’s short-term stock price concern works as a disclosure friction that allows for a partial disclosure equilibrium. When investors are uncertain about managers’ horizons, short-horizon managers can withhold bad news by pooling with long-horizon managers who are not motivated to disclose, regardless of the content of the news, as they are largely indifferent to short-term stock prices. Based on this theoretical framework, I hypothesize that reducing investors’ uncertainty about managerial horizon reduces this disclosure friction, thereby pressuring short-horizon managers to provide more voluntary disclosure. I use the executive compensation disclosure mandate as an empirical setting that reduced investors’ uncertainty about managerial horizon. Employing a difference-in-differences research design, I find a significant increase in voluntary disclosure for treated firms relative to control firms, largely driven by firms with short-horizon managers.