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Disclosure processing costs, investors’ information choice, and equity market outcomes: A review

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  • Blankespoor, Elizabeth
  • deHaan, Ed
  • Marinovic, Iván

Abstract

This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes. The existence of disclosure processing costs means that disclosures are not “public” information as traditionally defined, but instead can be a form of costly private information. Conceptualizing disclosures as private information makes it clear that learning from disclosures is an active economic choice and that disclosure pricing cannot be perfectly efficient. We review the analytical and empirical literature on sources of processing costs and how these costs affect equity market outcomes, primarily within rational equilibria. We also discuss studies of the feedback effects of investors' processing costs on managers’ choices about disclosure and corporate actions. We conclude that disclosure processing costs have implications for a wide array of accounting research and phenomena, but we are only just beginning to understand their effects.

Suggested Citation

  • Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
  • Handle: RePEc:eee:jaecon:v:70:y:2020:i:2:s016541012030046x
    DOI: 10.1016/j.jacceco.2020.101344
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    1. Dong, Yashu & Young, Danqing, 2021. "Foreign macroeconomic and industry-related information transfers around earnings announcements: Evidence from U.S.-listed non-U.S. firms," Journal of Accounting and Economics, Elsevier, vol. 71(2).

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    More about this item

    Keywords

    Disclosure processing costs; Limited attention; Disclosure pricing; Information awareness; Information acquisition; Information integration;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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