Investor sophistication and voluntary disclosures

Ronald A. Dye

doi:10.1023/A:1009627506893

Investor sophistication and voluntary disclosures

Ronald A. Dye^*

^*Corresponding author for this work

Accounting Information and Management

Research output: Contribution to journal › Article › peer-review

55 Scopus citations

Abstract

This paper studies voluntary disclosures in a model in which investors probabilistically become informed about whether a firm has received information. The firm's value is established via a first price, sealed bid, common value auction. The paper demonstrates that the threshold level determining whether the firm withholds or discloses information uniformly declines in the probability investors are informed. The paper also shows that, notwithstanding the risk-neutrality of investors, the expected selling price of the firm strictly decreases (increases) in the probability individual investors are informed when that probability is small (large). These results follow from "winner's curse" effects.

Original language	English (US)
Pages (from-to)	261-287
Number of pages	27
Journal	Review of Accounting Studies
Volume	3
Issue number	3
DOIs	https://doi.org/10.1023/A:1009627506893
State	Published - 1998

ASJC Scopus subject areas

Accounting
Business, Management and Accounting(all)

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10.1023/A:1009627506893

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AB - This paper studies voluntary disclosures in a model in which investors probabilistically become informed about whether a firm has received information. The firm's value is established via a first price, sealed bid, common value auction. The paper demonstrates that the threshold level determining whether the firm withholds or discloses information uniformly declines in the probability investors are informed. The paper also shows that, notwithstanding the risk-neutrality of investors, the expected selling price of the firm strictly decreases (increases) in the probability individual investors are informed when that probability is small (large). These results follow from "winner's curse" effects.

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Investor sophistication and voluntary disclosures

Abstract

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