Disagreements among Shareholders over a Firm's Disclosure Policy

This paper examines the issue of voluntary disclosure of information by firms with heterogeneous shareholders. It shows that in a rational expectations setting, better informed shareholders prefer less disclosure than less well-informed shareholders. This is due to differences in the adverse risk-sharing effect and the beneficial cost-saving effect of disclosure among shareholders with different risk tolerances and information acquisition cost functions. The presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm's disclosure policy.