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Formerly Graduate
School of Industrial Administration (GSIA)
William Larimer Mellon, Founder
Schenley Park
Pittsburgh, Pennsylvania 15213-3890
United States of America |
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Pierre Jinghong Liang
Associate Professor of Accounting
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Informational Feedback, Adverse Selection, and Optimal Disclosure Policy
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Pingyang Gao
University of Chicago
Pierre Jinghong Liang
Carnegie Mellon University |
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Accepted by Journal of Accounting Research
June 2013
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| Downloading the paper |
| 2010-Jun Draft ; 2011-Mar Draft; 2011-Mar Draft 2012-Nov Draft 2013-July final Draft |
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| Abstract |
Faceless trading in a secondary stock market not only redistributes wealth among in
vestors but also generates information that guides subsequent real decisions. We provide
a disclosure model that reffects both functions of the secondary market. By partially
preempting traders’information advantage established from information acquisition, disclosure reduces incentives for privately acquiring information. The resulting reduction in
information acquisition has two opposite effects on firm value. On one hand, it narrows
the information gap between informed and uninformed traders and improves the liquidity
of firm shares. On the other hand, it reduces the informational feedback from the stock
market to real decisions. The optimal disclosure policy is determined by the trade-off
between liquidity enhancement and price discovery. The model explains why the firm
value could be higher in an environment that promotes disclosure and private information
production at the same time and why growth firms are endogenously more opaque than
value firms. |
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