Finance Seminar - Ilan Kremer (Warwick)

Abstract: We present a strategic disclosure model where a manager chooses between a short-term and a long-term project. The short-term cash flow can be disclosed early but can also be temporarily hidden. Without disclosure, the stock price reflects suspicions that the manager is concealing a negative outcome of the short-term project. Consistent with the existing literature, we find that strategic disclosure may lead to inefficiency, with the manager selecting an inferior short-term project to maximize the short-run price. However, our main result demonstrates that the inefficiency is quite limited, even when the manager cares almost entirely about the short-term stock price.

Location: LG17 Bentham