Using a Verreccia [1983]-type model, we study the optimal voluntary disclosure strategy of a manager with private information that helps the market interpret financial information the firm is required to report. In equilibrium, the manager’s disclosure strategy enhances upward or mitigates downward revisions in the market’s estimate of firm value conditional on the firm’s financial reports. Hence, what the manager discloses (large or small values of her private information) and the probability of disclosure depend on the information in the firm’s financial reports. This leads to testable implications regarding the probability of voluntary disclosure (e.g., firms whose financial reports are more surprising provide more voluntary disclosures), and how earnings and revenue response coefficients depend on the manager’s voluntary disclosure strategy. Finally, we show that changes in mandatory disclosure regulations can reduce the probability of voluntary disclosure even though the manager’s private information is used to interpret the firm’s mandatory disclosures.
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