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Corporate Disclosures: Strategic Donation of Information *
Author(s) -
SHIN JHINYOUNG,
SINGH RAJDEEP
Publication year - 2010
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2010.01120.x
Subject(s) - insider , private information retrieval , business , donation , stochastic game , public disclosure , insider trading , accounting , information asymmetry , public information , microeconomics , economics , finance , public relations , computer security , mechanical engineering , engineering , political science , computer science , law , economic growth
In this paper, we model a corporate insider's motivation of truthful pre‐trade disclosure of her private payoff‐relevant information. In a model in which disclosure has no efficiency gains like reduced cost of capital, no legal implications, and no signaling motivations, we show that a corporate insider may choose to disclose payoff‐relevant information as a means of maximizing her trading profits. This truthful disclosure is done pre‐trade and is beneficial to the corporate insider as it erodes the informational advantage of other traders with private information. This new rationale for public disclosure needs to be empirically tested by examining the trades of corporate insiders after, and not before, public disclosures.