Corporate Disclosures: Strategic Donation of Information

Abstract

In this paper we model a corporate manager's choice of a disclosure regime. In a model in which disclosure has no efficiency gains like reduced cost of capital, no legal implications, and no signaling motivations, we show that a manager may choose to disclose payoff-relevant information as a means of maximizing her trading profits. This truthful disclosure is done pre-trade and is beneficial to the manager as it erodes the informational advantage of other traders with private information. This new rationale for public disclosure needs to be empirically tested by examining the trades of managers after, and not before, public disclosures.

Keywords: Information donation, Information sharing

JEL Classification: G10, G12, G38, D82, M41, M45