Disclosure through multiple disclosure channels
This study examines the impact of managers having a choice of disclosure channels through which they can voluntarily disclose. This first chapter presents a model in which the manager can choose to disclose different information to two different investor types: informed and uninformed. Firm value is initially established in a competitive equilibrium setting with risk averse investors and noisy information based on the participants' expectations of firm value given the manager's disclosure (or lack thereof). Long-run firm value is established through a rational expectations equilibrium. This paper demonstrates a situation in which the manager will, in equilibrium, disclose more information to informed investors than to uninformed investors some of the time. Furthermore, this paper shows that the manager increases overall disclosure when provided with a second information channel, but decreases disclosure that is quickly parsed by uninformed investors. As the manager's optimal strategy is identical for maximizing both short and long-run stock price, the manager is able to use multiple disclosure channels to maximize short-run gain without decreasing the long-run stock price. The second chapter considers the dissemination of information across multiple channels, and the extent to which the use of multiple disclosure channels affects firm stock price. I examine two channels of voluntary disclosures: the voluntary portions of SEC filings and firm websites. Investors appear to react differently to these channels, as SEC filings are likely to be more costly for investors to process (in terms of both acquisition and cognitive costs) when compared to firm websites. These textual voluntary disclosures are examined using a topic modeling methodology to identify two constructs: tone difference, defined as the extent to which firm websites have more positive disclosure and less negative disclosure than SEC filings, and disclosure distance, defined as the extent to which the disclosure topics discussed are similar or different across SEC filings and firm websites. Shifting of information across channels is identified, as some managers appear to voluntarily disclose similar information across these two channels, but with more bad news disclosed through SEC filings and more good news disclosed through firm websites. In the short run, asymmetry in processing costs leads to investors impounding the good news in firm websites more quickly than the bad news in the voluntary portion of SEC filings, despite information across channels being released contemporaneously. I find that managers are incentivized to make strategic disclosure channel choices through their stock and option holdings. Furthermore, managers at firms exhibiting strategic disclosure choices sell significantly more stock after the good news is impounded but before the bad news is fully impounded. Further evidence demonstrates that low liquidity helps to facilitate the effects of strategic disclosure channel choices.
Voluntary Disclosure, Text analysis, Investor reaction, Websites, Management incentives, Disclosure Models, Latent Dirichlet Allocation, Sentiment, Tone, Disclosure similarity
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign