The disconnectbetweenthefulldisclosurepredictionsintheearlyanalyticaldisclosureliterature(Grossman,1981 and
Milgrom,1981) andtheempiricallyobservedphenomenonoffirmssometimeswithholdinginformationinspiredthe
developmentofvoluntarydisclosureliterature.2 In hisseminalpapers, Verrecchia(1983, 1990) providesperhapsoneofthe
first explanationsforthephenomenonoffirmsconcealingsomeinformation:thepresenceofproprietarydisclosurecosts
can leadfirmstodiscloseonlyrelativelyfavorableinformationandwithholdunfavorableinformationinequilibrium.3
This disclosureliteratureassumesthatiffirmschoosetodisclose,theymustonlydisclosetheirprivateinformation
truthfully;theonlyotherchoicefirmshaveisnottomakeanydisclosures.Incontrast,thetradingliterature(e.g., Akerlof,
1970) oftenassumesthatsellerscannotcommunicatetheirprivateinformationcredibly.Whileboththesesetsof
assumptionsmaybetrueinavarietyofsettings,wealsoempiricallyobservesettingsinwhichthecredibilityoffirms'
The disconnectbetweenthefulldisclosurepredictionsintheearlyanalyticaldisclosureliterature(Grossman,1981 andMilgrom,1981) andtheempiricallyobservedphenomenonoffirmssometimeswithholdinginformationinspiredthedevelopmentofvoluntarydisclosureliterature.2 In hisseminalpapers, Verrecchia(1983, 1990) providesperhapsoneofthefirst explanationsforthephenomenonoffirmsconcealingsomeinformation:thepresenceofproprietarydisclosurecostscan leadfirmstodiscloseonlyrelativelyfavorableinformationandwithholdunfavorableinformationinequilibrium.3This disclosureliteratureassumesthatiffirmschoosetodisclose,theymustonlydisclosetheirprivateinformationtruthfully;theonlyotherchoicefirmshaveisnottomakeanydisclosures.Incontrast,thetradingliterature(e.g., Akerlof,1970) oftenassumesthatsellerscannotcommunicatetheirprivateinformationcredibly.Whileboththesesetsofassumptionsmaybetrueinavarietyofsettings,wealsoempiricallyobservesettingsinwhichthecredibilityoffirms'
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