Information and Disclosure
Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Philip Bond, University of Washington
Optimal Disclosure and Fight for Attention
AbstractIn this paper, firm managers use their disclosure policy to direct speculators' scarce attention towards their firm. More attention implies greater outside information and strengthens the feedback effect from stock prices to firm investment. The model highlights a novel trade-off associated with disclosure. While more precise public information crowds-out the value of private information, it can also signal high firm quality to the financial market. If the spread between the (unknown) quality of firms is sufficiently high, there is a separating equilibrium with partial disclosure by high-quality firms and no disclosure by low-quality firms. Otherwise, there is a (more efficient) pooling equilibrium without disclosure. Surprisingly, the introduction of short-run incentives and disclosure caps increase investment efficiency.
Externalities of Accounting Disclosures: Evidence from the Federal Reserve
AbstractUsing unique data that track the Federal Reserve's access of SEC filings, we examine whether the information asymmetry between the Fed and the public has a granular origin. We show that the Fed's access of SEC filings increases significantly when the economy performs poorly and the financial system is less stable, and that it focuses more on firms whose idiosyncratic shocks have a greater impact on macroeconomic fluctuations. We also show that qualitative information in Fed-accessed filings is predictive of the Fed's forecasts for economic growth, beyond information in commercial forecasts.
Monitor Reputation and Transparency
AbstractWe study the disclosure policy of a regulator who oversees a monitor with reputation concerns. The monitor faces a strategic agent, who chooses how much to manipulate in response to the monitor's reputation. Manipulation increases the arrival rate of a ``bad news'' shock, but the agent manipulates less for higher reputations. This leads to a unique ``Shirk-Work-Shirk'' equilibrium in which the monitor only exerts effort for intermediate reputations. Hence, uncertainty about the monitor's type is valuable.
Instead of providing transparency, the regulator's disclosure keeps the monitor's reputation intermediate, which requires releasing information which damages reputation. The regulator reveals delayed bad news for low reputations, delayed good news for intermediate reputations, but nothing for high reputations. Her policy becomes more lenient over time -- she never ruins a good reputation.
- G3 - Corporate Finance and Governance