Abstract: The Journal of FinanceVolume 40, Issue 4 p. 1071-1094 Article Optimal Release of Information By Firms DOUGLAS W. DIAMOND, DOUGLAS W. DIAMONDGraduate School of Business, University of Chicago. I am grateful to E. Cammack, G. Connor, P. Dybvig, M. Hellwig, B. Trueman, R. Verrecchia, an anonymous Associate Editor, and workshop participants at Chicago, Northwestern, and Wisconsin for helpful comments. Research support was provided by the University of Bonn and the Center for Research in Security Prices at the University of Chicago.Search for more papers by this author DOUGLAS W. DIAMOND, DOUGLAS W. DIAMONDGraduate School of Business, University of Chicago. I am grateful to E. Cammack, G. Connor, P. Dybvig, M. Hellwig, B. Trueman, R. Verrecchia, an anonymous Associate Editor, and workshop participants at Chicago, Northwestern, and Wisconsin for helpful comments. Research support was provided by the University of Bonn and the Center for Research in Security Prices at the University of Chicago.Search for more papers by this author First published: September 1985 https://doi.org/10.1111/j.1540-6261.1985.tb02364.xCitations: 629 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat ABSTRACT This paper provides a positive theory of voluntary disclosure by firms. Previous theoretical work on disclosure of new information by firms has demonstrated that releasing public information will often make all shareholders worse off, due to an adverse risk-sharing effect. This paper uses a general equilibrium model with endogenous information collection to demonstrate that there exists a policy of disclosure of information which makes all shareholders better off than a policy of no disclosure. The welfare improvement occurs because of explicit information cost savings and improved risk sharing. This provides a positive theory of precommitment to disclosure, because it will be unanimously voted for by stockholders and will also represent the policy that will maximize value ex ante. In addition, it provides a "missing link" in financial signalling models. Apart from the effects on information production analyzed in this paper, most existing financial signalling models are inconsistent with a firm taking actions which facilitate future signalling because release of the signal makes all investors worse off. REFERENCES 1A. Admati. "A Noisy Rational Expectations Equilibrium for Multi-Asset Securities Markets." Econometrica, forthcoming, 1985. 2F. Allen. " A Normative Analysis of Informational Efficiency in Markets for Risky Assets." Working Paper, University of Pennsylvania, 1984. 3S. Bhattacharaya. "Imperfect Information, Dividend Policy and 'The Bird in the Hand' Fallacy." Bell Journal of Economics 10 (Spring 1979), 259–70. 4S. Bhattacharaya and J. Ritter. "Innovation and Communication: Signalling with Partial Disclosure." Review of Economic Studies 50 (April 1983), 331–51. 5M. Degroot. Optimal Statistical Decisions. New York: McGraw-Hill, 1970. 6D. W. Diamond. " Information Production and Signalling by Firms." 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"The Use of Mathematical Models in Financial Accounting." Journal of Accounting Research 20 (Supplement 1982), 1–42. 28R. Verrecchia. "Discretionary Disclosure." Journal of Accounting and Economics 5 (1983), 179–94. Citing Literature Volume40, Issue4September 1985Pages 1071-1094 ReferencesRelatedInformation
Publication Year: 1985
Publication Date: 1985-09-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 159
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