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Disclosure Dynamics and Investor Learning

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  • Frank S. Zhou

    (Department of Accounting, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

This paper examines whether investor learning about profitability (i.e., the mean of earnings distribution) leads to persistence in disclosure decisions. A repeated single-period model shows that persistent investor beliefs about profitability lead to persistent disclosure decisions. Using earnings forecast data, I structurally estimate the model and perform several counterfactual analyses. I find that, when investors are assumed to know profitability, the persistence of management forecast decisions significantly declines by 17%–27%. About 24% of firms would have disclosed differently, resulting in 3.9% net change in the amount of information (i.e., posterior variance) provided to the capital market. Collectively, the results indicate the importance of learning profitability in understanding disclosure decisions and the capital market consequences of disclosures.

Suggested Citation

  • Frank S. Zhou, 2021. "Disclosure Dynamics and Investor Learning," Management Science, INFORMS, vol. 67(6), pages 3429-3446, June.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3429-3446
    DOI: 10.1287/mnsc.2020.3638
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    References listed on IDEAS

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    Cited by:

    1. David S. Koo & Isabel Yanyan Wang & Shuting Wu, 2026. "Memory, Retrieved Context, and Bias in Management Earnings Forecasts," Management Science, INFORMS, vol. 72(3), pages 2451-2476, March.
    2. Bertomeu, Jeremy, 2024. "Disclosure paternalism," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    3. Rimmy E. Tomy & Regina Wittenberg-Moerman, 2025. "Information Preference and Credit Allocation in a Bazaar Economy," Management Science, INFORMS, vol. 71(12), pages 10642-10670, December.
    4. Matthias Breuer & Harm H. Schütt, 2023. "Accounting for uncertainty: an application of Bayesian methods to accruals models," Review of Accounting Studies, Springer, vol. 28(2), pages 726-768, June.
    5. Chen Chen & Leonard Leye Li & Louise Yi Lu & Rencheng Wang, 2023. "Flu Fallout: Information Production Constraints and Corporate Disclosure," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 61(4), pages 1063-1108, September.
    6. Matthias Breuer & Eva Labro & Haresh Sapra & Anastasia A. Zakolyukina, 2024. "Bridging Theory and Empirical Research in Accounting," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 62(3), pages 1121-1139, June.
    7. repec:bcp:journl:v:9:y:2025:i:11:p:2529-2541 is not listed on IDEAS
    8. Edwige Cheynel & Frank S. Zhou, 2024. "Auditor Tenure and Misreporting: Evidence from a Dynamic Oligopoly Game," Management Science, INFORMS, vol. 70(8), pages 5557-5585, August.
    9. Heinle, Mirko S. & Kim, Chongho & Taylor, Daniel J. & Zhou, Frank S., 2025. "Signaling long-term information using short-term forecasts," Journal of Accounting and Economics, Elsevier, vol. 80(1).

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