Disclosure Dynamics and Investor Learning

Frank S. Zhou ()
Additional contact information
Frank S. Zhou: Department of Accounting, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2021, vol. 67, issue 6, 3429-3446

Abstract: This paper examines whether investor learning about profitability (i.e., the mean of earnings distribution) leads to persistence in disclosure decisions. A repeated single-period model shows that persistent investor beliefs about profitability lead to persistent disclosure decisions. Using earnings forecast data, I structurally estimate the model and perform several counterfactual analyses. I find that, when investors are assumed to know profitability, the persistence of management forecast decisions significantly declines by 17%–27%. About 24% of firms would have disclosed differently, resulting in 3.9% net change in the amount of information (i.e., posterior variance) provided to the capital market. Collectively, the results indicate the importance of learning profitability in understanding disclosure decisions and the capital market consequences of disclosures.

Keywords: persistence of disclosure decisions; earnings forecasts; investor learning; parameter uncertainty; Bayesian estimation; dynamics of disclosures (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2020.3638 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3429-3446

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().