Investment Busts, Reputation, and the Temptation to Blend in with the Crowd

Grenadier, Steven R.; Malenko, Andrey; Strebulaev, Ilya A.

doi:10.2139/ssrn.2022107

Cited by 3 publications

(1 citation statement)

References 40 publications

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“…Such real costs may ensue, for example, when the manager continues unprofitable projects to avoid releasing negative information because the market would interpret the act of shutting down a project as a signal that the manager is hiding bad news. Grenadier and Malenko () and Grenadier, Malenko, and Strebulaev () study dynamic signalling in real option settings along these lines. Our analysis extends this literature along several dimensions.…”

Section: Settingmentioning

confidence: 99%

No news is good news: voluntary disclosure in the face of litigation

Marinović

Varas

2016

The RAND J of Economics

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We study disclosure dynamics when the firm value evolves stochastically over time. The presence of litigation risk, arising from the failure to disclose unfavorable information, crowds out positive disclosures. Litigation risk mitigates firms' tendency to use inefficient disclosure policies. From a policy perspective, we show that a stricter legal environment may be an efficient way to stimulate information transmission in capital markets, particularly when the nature of information is proprietary. We model the endogeneity of litigation risk in a dynamic setting and shed light on the empirical controversy regarding whether disclosure preempts or triggers litigation.

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Section: Settingmentioning

confidence: 99%

No news is good news: voluntary disclosure in the face of litigation

Marinović

Varas

2016

The RAND J of Economics

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Managing Performance Signals Through Delay: Evidence from Venture Capital

Chakraborty

Ewens

2014

SSRN Journal

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Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment

Grenadier¹,

Malenko

2014

SSRN Journal

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We consider a problem where an uninformed principal makes a timing decision interacting with an informed but biased agent. Because time is irreversible, the direction of the bias crucially affectsMany decisions in organizations deal with the optimal timing of taking a certain action. Because information in organizations is dispersed, the decision maker needs to rely on the information of her better-informed subordinates who, however, may have conflicting preferences. Consider the following two examples of such settings: (i) in a typical hierarchical firm, top executives may be less informed than the product manager about the optimal timing of the launch of a new product. It would not be surprising for an empire-building product manager to be biased in favor of an earlier launch; (ii) the CEO of a multinational corporation is contemplating when to shut down a plant in a struggling economic region. While the local plant manager is better informed about the prospects of the plant, he may be biased toward a later shutdown due to personal costs of relocation.These examples share a common theme. An uninformed principal faces an optimal stopping-time problem-when to exercise a real option. An agent is better informed than the principal but is biased toward earlier or later exercise. In this paper, we study how organizations make timing decisions in such a setting. We examine the * Grenadier: Graduate School of Business, Stanford University, 655 Knight Way, Stanford, CA 94305 (e-mail: sgren@stanford.edu); Malenko: MIT Sloan School of Management, 100 Main Street, E62-619, Cambridge, MA 02142 (e-mail: amalenko@mit.edu); Malenko: Carroll School of Management, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467 (e-mail: nadya.malenko@bc.edu). We are grateful to three anonymous referees,

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Investment Busts, Reputation, and the Temptation to Blend in with the Crowd

Cited by 3 publications

References 40 publications

No news is good news: voluntary disclosure in the face of litigation

No news is good news: voluntary disclosure in the face of litigation

Managing Performance Signals Through Delay: Evidence from Venture Capital

Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment

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