AbstractABSTRACT This paper studies managers' preferences among information acquisition and disclosure policies when their firms are required to engage in "real-time" or "continuous" financial reporting. The paper predicts that for many, but not all, processes describing the distribution of their firms' cash flows, when subject to such reporting requirements, managers will engage in disclosure "bunching," that is, they will bunch the discretionary component of the information they acquire and disclose into a single point in time rather than spread the acquisition and disclosure of that information over time. We show that managers' preferred bunching period depends on managers' strategy for trading in their firms' shares, managers' risk aversion, the risk premium the capital market attaches to firms' shares, and the size of managers' initial ownership stakes in their firms. We also study and characterize how the equilibrium prices of firms' shares vary over time and also how managers' optimal trading strategies vary with their most preferred "bunching" strategies. Several extensions confirm the robustness of the optimality of disclosure "bunching." Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2010.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Accounting Research.
Volume (Year): 48 (2010)
Issue (Month): 3 (06)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456
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- Xue, Yi & Gençay, Ramazan, 2012.
"Hierarchical information and the rate of information diffusion,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 36(9), pages 1372-1401.
- Yi Xue & Ramazan Gencay, 2009. "Hierarchical Information and the Rate of Information Diffusion," Working Paper Series 29_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
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