Working Paper: CEPR ID: DP17760
Authors: Ron Kaniel; Snehal Banerjee; Bradyn Breondrish; Ilan Kremer
Abstract: Why do firms engage in costly, voluntary disclosure of information which is subsumedby a later announcement? We consider a model in which the firm’s managercan choose to disclose short-term information which becomes redundant later. Whendisclosure costs are sufficiently low, the manager discloses even if she only cares aboutthe long-term price of the firm. Intuitively, by disclosing, she causes early investors totrade less aggressively, reducing price informativeness, which in turn increases informationacquisition by late investors. The subsequent increase in acquisition more thanoffsets the initial decrease in price informativeness and, consequently, improves longterm prices.
Keywords: costly voluntary disclosure; information acquisition; redundant information
JEL Codes: D21; D82; D83; D84; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| manager's decision to disclose short-term information (G14) | early investors trading less aggressively (G24) |
| early investors trading less aggressively (G24) | reduced price informativeness (D89) |
| reduced price informativeness (D89) | increased information acquisition by later investors (G14) |
| increased information acquisition by later investors (G14) | improved long-term prices (G13) |
| manager's decision to disclose short-term information (G14) | reduced price informativeness (D89) |
| manager's decision to disclose short-term information (G14) | improved long-term prices (G13) |