Is Silence Golden? Real Effects of Mandatory Disclosure

Sudarshan Jayaraman and Joanna Shuang Wu

The Review of Financial Studies, 2019, vol. 32, issue 6, 2225-2259

Abstract: Mandatory disclosure provides benefits, but it also entails costs. One cost concerns managerial learning: by discouraging informed trading, disclosure could reduce managers’ ability to glean decision-relevant information from prices. Using mandatory segment reporting in the United States, we uncover a reduction in investment-$q$ sensitivity, indicating lower investment efficiency after regulation. Consistent with learning, lower sensitivity is concentrated in firms with more informed trading and lower financing constraints. Constrained firms exhibit no change in investment-$q$ sensitivity, suggesting that they enjoy countervailing benefits via greater financing and stronger governance. Overall, we document a novel link between mandatory disclosure and real effects. Received October 25, 2017; editorial decision June 20, 2018 by Editor Wei Jiang.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhy088 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:rfinst:v:32:y:2019:i:6:p:2225-2259.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().