A Theory of Hard and Soft Information

Jeremy Bertomeu and Ivan Marinovic
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Jeremy Bertomeu: Baruch College, CUNY
Ivan Marinovic: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We study optimal disclosure via two competing communication channels; hard information whose value has been verified and soft disclosures such as forecasts, unaudited statements and press releases. We show that certain soft disclosures may contain as much information as hard disclosures, and we establish that: (a) exclusive reliance on soft disclosures tends to convey bad news, (b) credibility is greater when unfavorable information is reported and (c) misreporting is more likely when soft information is issued jointly with hard information. We also show that a soft report that is seemingly unbiased in expectation need not indicate truthful reporting. We demonstrate that mandatory disclosure of hard information reduces the transmission of soft information, and that the aggregation of hard with soft information will turn all information soft.

JEL-codes: D72 D82 D83 G20 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (6)

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