Investor Sophistication and Voluntary Disclosures

Investor Sophistication and Voluntary Disclosures This paper studies voluntary disclosures in a model in which investors probabilistically become informed about whether a firm has received information. The firm's value is established via a first price, sealed bid, common value auction. The paper demonstrates that the threshold level determining whether the firm withholds or discloses information uniformly declines in the probability investors are informed. The paper also shows that, notwithstanding the risk-neutrality of investors, the expected selling price of the firm strictly decreases (increases) in the probability individual investors are informed when that probability is small (large). These results follow from “winner's curse” effects. Review of Accounting Studies Springer Journals

Investor Sophistication and Voluntary Disclosures

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Kluwer Academic Publishers
Copyright © 1998 by Kluwer Academic Publishers
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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