Ivan Marinovic (Stanford Graduate School of Business) and Felipe Varas (Duke University) have posted “The Timing and Frequency of Corporate Disclosures”, Rock Center for Corporate Governance at Stanford University Working Paper No. 169.
The abstract is as follows:
This paper studies dynamic disclosure in an environment with continuous flow of private and public information. In equilibrium, the manager may both preempt or withhold bad news, depending on the relative importance of litigation risk vs. disclosure costs. Consistent with the evidence, we show that the fear of setting a strong disclosure precedent, may discourage managers from disclosing their information altogether. Our paper sheds light on the puzzling relation between disclosure and litigation. We show that in the presence of litigation risk a higher intensity of public news may increase disclosure; whereas in its absence it would reduce it. Surprisingly, a higher litigation risk may make the manager better off by inducing savings on disclosure costs. Our analysis suggests that the persistence of cash flows is a key determinant of the likelihood of disclosure that has not been considered by extant empirical research.