Good disclosure,bad disclosure |
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Authors: | Itay Goldstein Liyan Yang |
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Institution: | 1. Department of Finance, Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, United States;2. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON M5S3E6, Canada;3. Guanghua School of Management, Peking University, Peking 100871, China |
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Abstract: | We study real-efficiency implications of disclosing public information in a model with multiple dimensions of uncertainty where market prices convey information to a real decision maker. Paradoxically, when disclosure concerns a variable that the real decision maker cares to learn about, disclosure negatively affects price informativeness, and in markets that are effective in aggregating private information, this negative price-informativeness effect can dominate so that better disclosure negatively impacts real efficiency. When disclosure concerns a variable that the real decision maker already knows much about, disclosure always improves price informativeness and real efficiency. Our analysis has important empirical and policy implications for different contexts such as disclosure of stress test information and regulation of credit ratings. |
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Keywords: | Disclosure Price informativeness Learning Real efficiency D61 G14 G30 M41 |
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