Voluntary Disclosure and Informed Trading*
Contemporary Accounting Research · 2020 · Volume 37 · Issue 4
Abstract
This study analyzes the impact of informed trading on voluntary corporate disclosure in the presence of two factors: the cost of disclosure and the value of a manager's informedness. In the absence of both factors, informed trading hasno impact on disclosureeven when traders are not certain whether the manager has information. When disclosure is costly, informed trading serves as a free substitute for the disclosure of favorable information, andreduces disclosure. Surprisingly, when the manager's informedness is valuable for the firm, informed trading can alsoincrease disclosure. Traders can discover unfavorable information about the firm, so managers with such information have less incentive to pool with uninformed managers and disclose to show that they are informed. The study also demonstrates that informed trading can have either a positive or a negative effect on firm value by crowding in or crowding out information production in the firm. These results hold for general information structures and are robust if traders can choose how much information can be acquired.
Keywords
voluntary disclosure, informed trading, information acquisition, real effects, divulgation volontaire, transactions informées, acquisition de l'information, effets réels
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