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The kind of silence: managing a reputation for voluntary disclosure in financial markets

Gietzmann, Miles and Ostaszewski, Adam (2023) The kind of silence: managing a reputation for voluntary disclosure in financial markets. Annals of Finance, 19 (4). 419 - 447. ISSN 1614-2446

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Identification Number: 10.1007/s10436-023-00430-5


We create a continuous-time setting in which to investigate how the management of a firm controls a dynamic choice between two generic voluntary disclosure decision rules (strategies) in the period between two consecutive mandatory disclosure dates: one with full and transparent disclosure termed candid, the other, termed sparing, under which values only above a dynamic threshold are disclosed. We show how parameters of the model such as news intensity, pay-for-performance and time-to-mandatory-disclosure determine the optimal choice of candid versus sparing strategies and the optimal times for management to switch between the two. The model presented develops a number of insights, based on a very simple ordinary differential equation characterizing equilibrium in a piecewise-deterministic model, derivable from the background Black–Scholes model and Poisson arrival of signals of firm value. It is shown that in equilibrium when news intensity is low a firm may employ a candid disclosure strategy throughout, but will otherwise switch (alternate) between periods of being candid and periods of being sparing with the truth (or the other way about). Significantly, with constant pay-for-performance parameters, at most one switching can occur.

Item Type: Article
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Additional Information: © 2023 The Author(s)
Divisions: Mathematics
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Date Deposited: 30 Mar 2023 13:06
Last Modified: 15 Apr 2024 18:57

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