Intertemporal Dynamics of Corporate Voluntary Disclosures

Abstract

While empirical evidence alludes to the intertemporal nature of corporate voluntary disclosures, most of the existing theory analyzes firms' voluntary disclosure decisions within single-period settings. Introducing a repeated, multiperiod, disclosure setting, we study the extent to which firms' strategic disclosure behavior in the past affects their prosperity to provide voluntary disclosures in the future. Our analysis demonstrates that by voluntarily disclosing private information firms make an implicit commitment to provide similar disclosures in the future, and therefore are less willing to voluntarily disclose information in the first place. This effect is expected to be of larger magnitude for firms (1) with a long history of absence of voluntary disclosures and an impressive past operating performance, or (2) that operate in a relatively stable and predictable business and information environment, or (3) whose managers have a long time horizon and a high degree of risk aversion.

Informational Uniqueness, Corporate Disclosure, and Information Environment

“…For example, bundling guidance with earnings announcements may help to build up an expectation among investors that guidance will be issued regularly during subsequent quarterly earnings announcements no matter whether the signal is good or bad 7 . This is supported by prior research showing that 7 Having a track record of guidance during prior earnings announcements likely suggest that managers usually possess enough information to provide guidance by the time of the earnings announcements, following the assumption that firm's possession of information is history dependent (Einhorn and Ziv 2008). Stopping bundled guidance is likely interpreted more negatively and deemed more costly relative to stopping unbundled guidance.…”

Voluntary Disclosure Strategies and the Cost of Capital of Italian Blue Chips

“…Nevertheless, it is likely that voluntary disclosure strategies have an intertemporal dependence since choices made in a certain period influence those made in the next period. Cosimano et al (2002) and Einhorn e Ziv (2008) affirm the existence of this dependence in a relatively stable environment. Bagnoli (2009) affirms, with particular reference to Italian listed companies, the existence of important intertemporal dependence effects also with strong discontinuities at a competitive environment and informative level that make them relatively instable and unpredictable.We preferred to increase the number of corporations and of documents analyzed for each year instead of increasing the frequency of years.…”

Not Only What but Also When: A Theory of Dynamic Voluntary Disclosure

“…To the best of our knowledge the only papers that study multi-period voluntary disclosure are Shin (2003Shin ( , 2006; Einhorn and Ziv (2008);and Beyer and Dye (2012). The settings studied in these papers as well as the dynamic considerations of the agents are very different from ours.…”

“…The timing of disclosure does not play a role in such a setup. Einhorn and Ziv (2008) study a setting in which in each period the manager may obtain a single signal about the period's cash flows, where at the end of each period the realized cash flows are publicly revealed. If the agent chooses to disclose his private signal, he incurs some disclosure costs.…”