Talk Less, Learn More : Strategic Disclosure in Response to Managerial Learning from the Options Market

We examine how options trading affects voluntary corporate disclosure to explore how managers strategically disclose in light of potential managerial learning from the options market. We find that options trading reduces the likelihood and frequency of management earnings forecasts, suggesting that firms with active options trading on their stock make fewer voluntary disclosures. This finding is in accordance with the theoretical prediction that managers strategically reduce disclosure to avoid crowding out informed trading that provides them with useful information feedback. Further evidence of the managerial learning channel comes from the effect of options trading on management earnings forecasts being more pronounced when the need for managerial learning is higher, options trading is more informed, and managers are constrained from reducing earnings forecasts. Finally, we document a real effect of reduced disclosure: in making investment decisions, managers are better able to learn from options trading when they disclose less