Discretionary Disclosures Over Time

Abstract

We examine a dynamic experimentation problem in which managers make a binary choice that influences the information available to investors. We model a manager's multi-period problem of discretionary disclosures of the persistent component of earnings, when disclosure of current earnings is mandatory. We establish that there exists a partial disclosure equilibrium characterized by a disclosure threshold, such that disclosures arise if and only if the information is above the threshold. This disclosure threshold is increasing in the mean and decreasing in the variance of earnings. Further, the threshold can either increase or decrease over time.