Investor sophistication and disclosure clienteles
Published online: 8 March 2015
Ó Springer Science+Business Media New York 2015
Abstract This paper explores the idea of disclosure clienteles. Disclosure clien-
teles refer to the ability of different types of disclosure activities to differentially
beneﬁt investors with varying levels of sophistication. Disclosure clienteles exist
because variation in investor sophistication affects investors’ ability to utilize dis-
closed information and thus their preferences for distinct disclosure activities. I use
cross-sectional variation in inefﬁcient exercise activity in the options market to
identify variation in sophistication (e.g., investors’ attention, knowledge, and ex-
pertise) and then present empirical evidence consistent with disclosure clienteles.
The results show that sophisticated investors concentrate their trading in ﬁrms that
regularly issue earnings guidance. This relation is stronger before RegFD, when
sophisticated investors’ preferences for forecasting ﬁrms are predicted to be greater.
Alternatively, less sophisticated investors are more prevalent in ﬁrms with increased
levels of press-dissemination and superior investor relations (e.g., better access to
This paper is based on my dissertation at the University of Chicago. I am extremely grateful to my
dissertation committee: Christian Leuz (chair), Phil Berger, Doug Skinner, Jonathan Rogers, and Luigi
Zingales for their many insightful comments and helpful discussions. I am also grateful to Patricia
Dechow (editor), an anonymous referee, and Dan Amiram, Ray Ball, George Constantinides,
Christopher Culp, Joseph Gerakos, Michael Gofman, Joao Granja, Avner Kalay, Zach Kaplan, Alan
Moreira, Regina Wittenberg-Moerman, Gil Sadka, Alexi Savov, Catherine Schrand, Abbie Smith, and
seminar participants at The University of Chicago, Columbia University, The University of
Pennsylvania, MIT, New York University, University of Michigan, Dartmouth, Duke, The University of
Utah, Northwestern University, and Cornell University for their helpful comments. I also want to thank
the associates at Merrill Lynch and the SEC for the insightful discussions about the options market. I
greatly appreciate the ﬁnancial support of Columbia Business School. All errors are my own.
Electronic supplementary material The online version of this article (doi:10.1007/s11142-015-9317-z)
contains supplementary material, which is available to authorized users.
& Alon Kalay
Columbia Business School, Columbia University, New York, USA
Rev Account Stud (2015) 20:976–1011