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Good Disclosure, Bad Disclosure

Author

Listed:
  • Liyan Yang

    (Joseph L. Rotman School of Management)

  • Itay Goldstein

    (University of Pennsylvania)

Abstract

We study the real-efficiency implications of public information in a model where relevant decision makers learn from the financial market to guide their actions. Whether disclosure is "good" or "bad" depends on the interactions between two effects on real decision makers' forecast. Disclosure has a positive direct effect of providing new information, and it also has an indirect effect of changing the price informativeness. If disclosure is about a variable of which real decision makers are well informed, then the indirect effect is also positive, and overall disclosure improves real efficiency. If disclosure is about a variable that real decision markers care to learn much, then the indirect effect is negative, and it dominates the positive direct effect if and only if the market aggregates information effectively.

Suggested Citation

  • Liyan Yang & Itay Goldstein, 2014. "Good Disclosure, Bad Disclosure," 2014 Meeting Papers 42, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:42
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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