The Real Costs of Disclosure / Alex Edmans, Mirko Heinle, Chong Huang.

Format:

Book

Author/Creator:

Edmans, Alex.

Contributor:

National Bureau of Economic Research.

Heinle, Mirko.

Huang, Chong.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19420.

NBER working paper series no. w19420

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

This paper models the effect of disclosure on real investment. We show that, even if the act of disclosure is costless, a high-disclosure policy can be costly. Some information ("soft") cannot be disclosed. Increased disclosure of "hard" information augments absolute information and reduces the cost of capital. However, by distorting the relative amounts of hard and soft information, increased disclosure induces the manager to improve hard information at the expense of soft, e.g. by cutting investment. Investment depends on asset pricing variables such as investors' liquidity shocks; disclosure depends (non-monotonically) on corporate finance variables such as growth opportunities and the manager's horizon. Even if a low disclosure policy is optimal to induce investment, the manager may be unable to commit to it. If hard information turns out to be good, he will disclose it regardless of the preannounced policy. Government intervention to cap disclosure can create value, in contrast to common calls to increase disclosure.

Notes:

Print version record

September 2013.