Voluntary Disclosures When There Is an Option to Delay Disclosure

Abstract

What incentives drive managers to disclose immediately when they have an option to delay disclosures? I examine this question in a two‐period setting in which public news that is positively correlated with firm value arrives periodically. I show that, when the manager's likelihood of receiving information is independent of the public news, an informed manager is more likely to disclose immediately when the public news is good. This happens even as the disclosure threshold itself increases in the public news. My model provides a potential explanation for why managers have a higher propensity to provide earnings forecasts when current earnings are high. I also show that, even when disclosures are credible, the average price reaction to a voluntary disclosure is (i) decreasing in the magnitude of the public news and (ii) lower when the manager is more myopic. These results have potential implications for studies that use stock returns to measure the news contained in management disclosures.

With a Grain of Salt: Uncertain Relevance of External Information and Firm Disclosures

“…This observation is summarized in the following corollary. 17 Corollary 5. The price following disclosure at date 2, P E 2 (v), is lower than the initial price, P E 1 , if the observed and disclosed by the manager value is v ∈ [ v E , µ).…”