NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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.

download in pdf format
   (389 K)

email paper

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
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us