Nondisclosure and adverse disclosure as signals of firm value |
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| Authors: | Teoh, SH Hwang, CY |
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| Affiliation: | 1 Anderson Graduate School of Management, University of California at Los Angeles, 405 Hilgard Avenue, Los Angeles, CA 90024, USA
2 University of Pittsburgh, Pittsburgh, USA and Ohio State University, Ohio, USA |
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| Abstract: | We present a model in which some of the firm's information ('news')can be disclosed verifiably and some information ('type') cannot,to show that some firms may voluntarily withhold good news anddisclose bad news. We describe an equilibrium in which high-typefirms withhold good news and disclose bad news, whereas low-typefirms disclose good news and withhold bad news. Under some parametervalues, this equilibrium exists when other more traditionalequilibria are ruled out by standard equilibrium refinements.The model explains some otherwise anomalous empirical evidenceconcerning stock price reactions to disclosure, provides somenew empirical predictions, and suggests that mandatory disclosurerequirements may have the undesirable consequence of makingit more difficult for firms to reveal information that cannotbe disclosed credibly. |
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