Investor Sophistication and Voluntary Disclosures |
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Authors: | Ronald A Dye |
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Institution: | (1) J. L. Kellogg Graduate School of Management, Department of Accounting and Information Systems, Leverone Hall, Northwestern University, 2001 Sheridan Road, Evanston, Illinois, 60208 |
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Abstract: | This paper studies voluntary disclosures in a model in which investors probabilistically become informed about whether a firm has received information. The firm's value is established via a first price, sealed bid, common value auction. The paper demonstrates that the threshold level determining whether the firm withholds or discloses information uniformly declines in the probability investors are informed. The paper also shows that, notwithstanding the risk-neutrality of investors, the expected selling price of the firm strictly decreases (increases) in the probability individual investors are informed when that probability is small (large). These results follow from winner's curse effects. |
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