Endogenous Information Flows and the Clustering of Announcements
AbstractWe consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6985.
Date of creation: Oct 2008
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Other versions of this item:
- Viral V. Acharya & Peter DeMarzo & Ilan Kremer, 2011. "Endogenous Information Flows and the Clustering of Announcements," American Economic Review, American Economic Association, vol. 101(7), pages 2955-79, December.
- Acharya, Viral V & DeMarzo, Peter & Kremer, Ilan, 2011. "Endogenous Information Flows and the Clustering of Announcements," CEPR Discussion Papers 8680, C.E.P.R. Discussion Papers.
- Viral V. Acharya & Peter M. DeMarzo & Ilan Kremer, 2010. "Endogenous Information Flows and the Clustering of Announcements," NBER Working Papers 16485, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G3 - Financial Economics - - Corporate Finance and Governance
- M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-02-28 (Accounting & Auditing)
- NEP-ALL-2009-02-28 (All new papers)
- NEP-BEC-2009-02-28 (Business Economics)
- NEP-CSE-2009-02-28 (Economics of Strategic Management)
- NEP-CTA-2009-02-28 (Contract Theory & Applications)
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