The Effect of Exogenous Information on Voluntary Disclosure and Market Quality

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We analyze a disclosure model in which information may be disclosed by a firm as well as a third party. We refer to this third party as analyst coverage. Under plausible assumptions, analyst coverage crowds out disclosure by the firm. Despite the crowding out effect, we argue that an increase in analyst coverage increases aggregate information. While ranking based on Blackwell informativeness cannot be obtained we base this claim on two measures of information in prices. The first is statistical in nature while the second is based on liquidity in a trading stage that follows the information disclosure.
Joint work with Ilan Guttman and Ilan Kremer