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research-article

Voluntary Precision Disclosure and Endogenous Market Feedback

Published: 01 September 2023 Publication History

Abstract

We explore a manager’s incentives to disclose the precision of a signal about firm profitability. Voluntary disclosure of precision information encourages traders to acquire private information, increasing price informativeness and improving the firm’s investment efficiency. We highlight a novel tradeoff: on the one hand, more precise public information crowds out traders’ information acquisition by leveling the playing field. On the other hand, there can also be a crowding-in effect because high-precision disclosures indicate greater managerial confidence and higher investment, which increases the traders’ value of information. The crowding-in effect can dominate if the firm discloses above-average profitability. We derive testable predictions regarding the financial market consequences of supplemental disclosures that are informative about the precision or relevance of payoff-related signals.
This paper was accepted by Brian Bushee, accounting.

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Published In

cover image Management Science
Management Science  Volume 69, Issue 9
September 2023
723 pages
ISSN:0025-1909
DOI:10.1287/mnsc.2023.69.issue-9
Issue’s Table of Contents

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INFORMS

Linthicum, MD, United States

Publication History

Published: 01 September 2023
Accepted: 20 September 2022
Received: 21 May 2021

Author Tags

  1. precision information
  2. voluntary disclosure
  3. information acquisition
  4. market feedback

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