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Voluntary Disclosure and Informed Trading

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  • Evgeny Petrov

Abstract

This study analyzes the impact of informed trading on voluntary corporate disclosure in the presence of two factors: the cost of disclosure and the value of a manager's informedness. In the absence of both factors, informed trading has no impact on disclosure even when traders are not certain whether the manager has information. When disclosure is costly, informed trading serves as a free substitute for the disclosure of favorable information, and reduces disclosure. Surprisingly, when the manager's informedness is valuable for the firm, informed trading can also increase disclosure. Traders can discover unfavorable information about the firm, so managers with such information have less incentive to pool with uninformed managers and disclose to show that they are informed. The study also demonstrates that informed trading can have either a positive or a negative effect on firm value by crowding in or crowding out information production in the firm. These results hold for general information structures and are robust if traders can choose how much information can be acquired. Divulgation volontaire et transactions informées Dans cet article, j’étudie l'impact des transactions informées sur la divulgation volontaire d'information d'une société en regard de deux facteurs : les coûts associés à la divulgation et la valeur de l'information dont dispose un gestionnaire. En l'absence de ces deux facteurs, les transactions informées n'ont aucun impact sur la divulgation même lorsque les négociateurs ne savent pas si le gestionnaire possède de l'information. Lorsque la divulgation est coûteuse, les transactions informées remplacent la communication d'information favorable sans engager des coûts, et elles réduisent la divulgation. Fait étonnant, quand l'information que possède le gestionnaire a une valeur importante pour la société, les transactions informées peuvent également accroître la divulgation. Les négociateurs peuvent découvrir de l'information défavorable sur la société, ce qui fait en sorte qu'un gestionnaire détenant ce type d'information est moins enclin à s'associer avec des gestionnaires non informés et divulguera de l'information pour montrer qu'il est informé. Je démontre également que les transactions informées peuvent avoir un effet positif ou négatif sur la valeur de la société en stimulant ou en réduisant la production d'information au sein de la société. Ces résultats sont valables pour les structures d'information générales et sont robustes si les négociateurs peuvent choisir la quantité d'information qu'ils souhaitent obtenir.

Suggested Citation

  • Evgeny Petrov, 2020. "Voluntary Disclosure and Informed Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2257-2286, December.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:4:p:2257-2286
    DOI: 10.1111/1911-3846.12600
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