Endogenous Information Flows and the Clustering of Announcements

42 Pages Posted: 29 Sep 2008 Last revised: 29 Sep 2009

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Peter M. DeMarzo

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Ilan Kremer

Independent

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Date Written: September 1, 2008

Abstract

We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns.

Keywords: disclosure, disclosure dynamics, strategic disclosure, disclosure timing, earnings announcement, stochastic volatility, skewness

JEL Classification: G14, G30, D82, M41, M45

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and DeMarzo, Peter M. and Kremer, Ilan, Endogenous Information Flows and the Clustering of Announcements (September 1, 2008). Rock Center for Corporate Governance Working Paper No. 17, Available at SSRN: https://ssrn.com/abstract=1275133 or http://dx.doi.org/10.2139/ssrn.1275133

Viral V. Acharya (Contact Author)

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New York University (NYU) - Department of Finance ( email )

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Ilan Kremer

Independent

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