Interactive Discretionary Disclosures

We consider two managers’ sequential disclosure strategies. We show how the lead disclosing firm’s manager chooses his strategy anticipating the subsequent disclosure choice by a second firm’s manager. Prior studies of a single firm offer little insight into how sequential disclosure strategies interact. We show how strategies of both the leader and the follower depend on their signals’ correlation. For imperfectly and positively correlated signals, the follower benefits from the leader’s disclosures and free-rides by disclosing less frequently. With imperfectly and negatively correlated signals, the follower discloses more frequently to overcome investors’ rational revisions of beliefs based on the leader’s disclosures. Our results change if the correlation is perfect. With perfect positive correlation, the leader has an advantage as he can free-ride on the subsequent disclosures by the other manager. With perfect negative correlation, no disclosure arises only for intermediate values of each signal. Our findings provide insights into existing empirical work and directions for future empirical work on voluntary disclosure, including potentially testable empirical hypotheses that may be used to assess the validity of our model. More specifically, our findings explain how correlation, sequence, disclosing decision and non-disclosure can affect empirical results