Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If You Use a Screen Reader

This content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.

Optimal Release of Information By Firms

Douglas W. Diamond
The Journal of Finance
Vol. 40, No. 4 (Sep., 1985), pp. 1071-1094
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328395
Stable URL: http://www.jstor.org/stable/2328395
Page Count: 24
  • Read Online (Free)
  • Download ($33.95)
  • Subscribe ($19.50)
  • Cite this Item
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Optimal Release of Information By Firms
Preview not available

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.

Page Thumbnails

  • Thumbnail: Page 
1071
    1071
  • Thumbnail: Page 
1072
    1072
  • Thumbnail: Page 
1073
    1073
  • Thumbnail: Page 
1074
    1074
  • Thumbnail: Page 
1075
    1075
  • Thumbnail: Page 
1076
    1076
  • Thumbnail: Page 
1077
    1077
  • Thumbnail: Page 
1078
    1078
  • Thumbnail: Page 
1079
    1079
  • Thumbnail: Page 
1080
    1080
  • Thumbnail: Page 
1081
    1081
  • Thumbnail: Page 
1082
    1082
  • Thumbnail: Page 
1083
    1083
  • Thumbnail: Page 
1084
    1084
  • Thumbnail: Page 
1085
    1085
  • Thumbnail: Page 
1086
    1086
  • Thumbnail: Page 
1087
    1087
  • Thumbnail: Page 
1088
    1088
  • Thumbnail: Page 
1089
    1089
  • Thumbnail: Page 
1090
    1090
  • Thumbnail: Page 
1091
    1091
  • Thumbnail: Page 
1092
    1092
  • Thumbnail: Page 
1093
    1093
  • Thumbnail: Page 
1094
    1094