Is Silence Golden? Negative Effects of Mandatory Disclosure

“When you talk, you are only repeating what you already know. But if you listen, you may learn something new.”                                                                                     – Dalai Lama XIV

Disclosure regulation is a cornerstone of modern securities markets. Its economic consequences have been extensively studied and heavily debated. A widely recognized benefit of mandatory disclosure is that it levels the playing field by publicly disclosing to everyone what is known only to sophisticated investors. This leveling reduces trading costs and consequently reduces the firm’s cost of capital.

In our recent paper, available here, we show that this reduced informational advantage of sophisticated investors is … Read more