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The Kind of Silence: Managing a Reputation for Voluntary Disclosure in Financial Markets by Gietzmann, Miles B.; Ostaszewski, Adam J. is a scholarly article available to read on EtoBox.

What is The Kind of Silence: Managing a Reputation for Voluntary Disclosure in Financial Markets about?

In a continuous-time setting we investigate how the management of a firm controls a dynamic choice between two generic voluntary disclosure decision rules: one with full and transparent disclosure termed $\it{candid}$, the other, termed $\it{sparing}$, under which values only above a dynamic threshold are disclosed. We show how management are rewarded with a reputational premium for candour. The candid strategy is costly because the sparing alternative shields the firm from potential downgrades following low value disclosures. 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 strategy and the optimal time for management to switch between the two. The private news updates received by management are modelled with a Poisson process, occurring between the fixed mandatory disclosure dates, such as fiscal years or quarters, with the news received generated by a background Black-Scholes model of economic activity and of its partial observation. The model presented develops a number of insights, based on a very simple ordinary differential equation (ODE) characterizing equil

Author

Gietzmann, Miles B.; Ostaszewski, Adam J.

Published

2022

Language

EN