Good disclosure, bad disclosure

Itay Goldstein and Liyan Yang

Journal of Financial Economics, 2019, vol. 131, issue 1, 118-138

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.

Keywords: Disclosure; Price informativeness; Learning; Real efficiency (search for similar items in EconPapers)
JEL-codes: D61 G14 G30 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (55)

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Working Paper: Good Disclosure, Bad Disclosure (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:131:y:2019:i:1:p:118-138

DOI: 10.1016/j.jfineco.2018.08.004

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