Endogenous Information Flows and the Clustering of Announcements

Viral V. Acharya (), Peter DeMarzo and Ilan Kremer

No 6985, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.

Keywords: disclosure; disclosure dynamics; disclosure timing; earnings announcement; skewness; stochastic volatility; strategic disclosure (search for similar items in EconPapers)
JEL-codes: D82 G14 G3 M4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cse and nep-cta
Date: 2008-10
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