Working Paper: CEPR ID: DP6985
Authors: Viral V. Acharya; Peter DeMarzo; Ilan Kremer
Abstract: We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.
Keywords: disclosure; disclosure dynamics; disclosure timing; earnings announcement; skewness; stochastic volatility; strategic disclosure
JEL Codes: D82; G14; G3; M4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bad news about the economy (E66) | Immediate information release by firms (G14) |
| Good news about the economy (O51) | Delay in information release by firms (G14) |
| Ability to preempt external news (D84) | Clustering of disclosures (C38) |
| External economic conditions (bad news) (E66) | Firm disclosure behavior (immediate release of information) (G38) |
| External conditions (good news) (P17) | Firm behavior (delay in disclosure) (G34) |
| Timing of external announcements (G14) | Strategic decision-making process of firms (L21) |