Voluntary disclosure when private information and disclosure costs are jointly determined

Abstract

Classical models of voluntary disclosure feature two economic forces: the existence of an adverse selection problem (e.g., a manager possesses some private information) and the cost of ameliorating the problem (e.g., costs associated with disclosure). Traditionally these forces are modelled independently. In this paper, we use a simple model to motivate empirical predictions in a setting where these forces are jointly determined––where greater adverse selection entails greater costs of disclosure. We show that joint determination of these forces generates a pronounced non-linearity in the probability of voluntary disclosure. We find that this non-linearity is empirically descriptive of multiple measures of voluntary disclosure in two distinct empirical settings that are commonly thought to feature both private information and proprietary costs: capital investments and sales to major customers.

The Impact of COVID-19 on Global Financial Market Indices and Systemic Risk

“…Houlthousen & Verrechia (1990) suggest that ads that do not contain new information will not change investor confidence, so investors will not think about trading. This result is in line with that reached byKim, Taylor and Taylor (2020) who state that trade volume is a function. The change in absolute prices the increases, as the price reflects the change in the level of information.…”