The Real Costs of Disclosure

Alex Edmans, Mirko Heinle, Chong Huang

NBER Working Paper No. 19420
Issued in September 2013
NBER Program(s):   CF   LE   PR

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.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19420

Users who downloaded this paper also downloaded these:
Asquith, Covert, and Pathak w19417 The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market
Cheng, Hong, and Shue w19432 Do Managers Do Good with Other People's Money?
Loderer, Stulz, and Waelchli w19428 Limited Managerial Attention and Corporate Aging
Edmans w19573 Blockholders and Corporate Governance
Dew-Becker and Giglio w19416 Asset Pricing in the Frequency Domain: Theory and Empirics
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us