We study firms’ voluntary disclosures in a world of potential information leaks. We find that managers adapt their disclosure strategy to the likelihood and expected scope of leaks. An increasing likelihood fosters voluntary disclosure if leaks merely expose the manager’s information endowment and impedes disclosure if leaks in addition uncover the content of the manager’s information. We identify a non-monotonic effect on voluntary disclosure if the scope of information leakage is uncertain, i.e., if leaks reveal the information content with positive probability. Our results imply that information leaks are likely to increase voluntary disclosure whenever investors have difficulties interpreting the economic consequences of the leaked information. This is typically the case in industries with complex business models and innovative products. In mature industries, leaked information replaces voluntary disclosure. Our findings may help explaining mixed empirical evidence on voluntary disclosure in different reporting environments.

We study the design of public information structures that maximize the probability of selecting a Pareto dominant equilibrium in symmetric (2 × 2) coordination games. Because the need to coordi-nate exposes players to strategic risk, we treat the designer as able to implement an equilibrium only if the players believe it is also risk dominant. The designer’s task is therefore to pool the set of states in which the desired equilibrium is risk dominant with the largest possible set in which it is not, while keeping the desired equilibrium risk dominant in expectation. We provide a simple characterization of the optimal signal structure which holds under general conditions. We extend the analysis to related problems, and show that our intu-ition is robust, suggesting that our approach provides a promising way forward for a large class of problems in constrained information design.

We study the design of public information structures that maximize the probability of selecting a Pareto dominant equilibrium in symmetric (2 x 2) coordination games. Because the need to coordinate exposes players to strategic risk, we treat the designer as able to implement an equilibrium only if the players believe it is also risk dominant. The designer's task is therefore to pool the set of states in which the desired equilibrium is risk dominant with the largest possible set in which it is not, while keeping the desired equilibrium risk dominant in expectation. We provide a simple characterization of the optimal signal structure which holds under general conditions. We extend the analysis to related problems, and show that our intuition is robust, suggesting that our approach provides a promising way forward for a large class of problems in constrained information design.

We study a disclosure decision for a firm's manager with many sources of private information. The presence of multiple numerical signals provides the manager with an opportunity to hide information via aggregation, presenting net amounts in order to show information in its best light. We show that this ability to aggregate fundamentally changes the nature of voluntary disclosure, due to the market's inability to verify that a report is free of strategic aggregation. We find that, in equilibrium, the manager fully discloses if and only if the manager's private information makes the firm look sufficiently weak. By separating bad news from good news, a disaggregate report informs the market of as much offsetting news as possible, revealing how close the news is to a neutral benchmark. The result is, therefore, pooling at the top and separation at the bottom, the opposite of what transpires with a single news source.

In this paper, the interaction between the investor’s knowledge about a manager’s information endowment interacts and their ability to gauge the manager’s exact information content upon voluntary disclosure is studied. If investors are unable to discern anything beyond the manager’s information endowment, the probability that the investor is well informed correlates positively with the probability of voluntary disclosure. However, in lieu of extant research we find that, if investors are able to ascertain the manager’s private information as well as the information endowment, the results are opposite: the probability of non-disclosure as the probability that investors are well-informed increases. The results have implications for both empirical researchers and regulators: They show that the incentives for voluntary disclosure provided by rational expectations are highly sensitive to the levels of sophistication of the investors or the informational environment in a given market–in highly sophisticated markets we expect to see relatively little voluntary disclosure by firms because they don’t have to fear adverse reactions to non-disclosure.

This paper examines voluntary disclosure of nonproprietary information where the manager is uncertain about the market’s reaction to disclosure. In particular, we consider situations where a manager is uncertain about whether her decision to withhold private information is either directly observed or only considered possible by investors. We show that adding the possibility that investors identify deliberate non-disclosure increases voluntary disclosures by managers – a finding which is reminiscent of Bentham’s Panopticon. We show that voluntary disclosure increases in the probability that managers assign to the case of being identified as non-disclosers and that this result is the outcome of two opposing effects. Finally, we show that when the manager uses her private information for a publicly observable production decision she has ex ante incentives to make her non-disclosure decision identifiable. This counterintuitive result occurs because informed investors serve as a commitment device for managers to produce efficiently ex post.

There is a wide variety of reporting choices when presenting and disclosing financial instruments under IFRS. Behavioural theory suggests that the label under which a financial instrument is presented affects the risk perception of investors. We analyse in an experimen- tal setting how and why the European reporting practice of presenting financial instruments by measurement categories affects non-professional investors' risk perception. We find that risk perception depends on management's choice of a measurement category and not solely on the dimensions of the underlying cash flows. This bias results from an interaction of availability and representativeness effects and calls into question the acceptability of a presentation by measurement category as allowed by IFRS 7.