Disclosure under noisy information processing

Jeremy Bertomeu, Edwige Cheynel and Peicong Hu

MPRA Paper from University Library of Munich, Germany

Abstract: We study voluntary disclosure when investors observe firm reports through noisy information intermediaries such as auditors, analysts, rating agencies, or data providers. Any processing noise overturns the standard prediction of a unique partial-disclosure equilibrium. With low disclosure costs, the model unravels to full disclosure despite positive costs. With higher costs, the game admits two threshold equilibria featuring different disclosure probabilities. We characterize how the cost threshold for unraveling and the equilibrium set respond to changes in noise and fundamental uncertainty. In settings with high disclosure, both uncertainty and processing noise reduce disclosure, while higher certification costs can counterintuitively increase it. Endogenizing disclosure costs as optimal fees shows how profit-maximizing intermediaries select among equilibria, potentially generating a high-fee, high-disclosure regime. Extensions with bounded support, uncertain information endowment, endogenous noise, and competing information sources apply the insights to general information environments. The results caution against interpreting greater frictions as necessarily reducing disclosure.

Keywords: Voluntary Disclosure; Information Processing; Noisy Communication; Certification; Auditors; Information Intermediaries; Equilibrium Multiplicity; Unraveling (search for similar items in EconPapers)
JEL-codes: D43 D82 D83 M41 (search for similar items in EconPapers)
Date: 2026-04-27
New Economics Papers: this item is included in nep-mic
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