Professor Suil Pae of Sungkyunkwan University's SKK GSB, with co-author Eunhee Kim (Baruch College–CUNY), has published a paper in the prestigious journal The Accounting Review, revealing how firms decide what information to disclose.

According to the paper, when firms disclose good news, their stock prices increase, while bad news often results in a price drop. So, we assume that firms tend to disclose good news and withhold bad news. However, firms may sometimes disclose unexpected or seemingly inconsistent information.

This happens because firms consider the disclosure cost. When a firm's disclosure costs increase, the likelihood of not disclosing information increases, leading firms to withhold or partially disclose it. A firm will reveal private information if the expected benefit of increasing the market price outweighs the disclosure cost.

Also, uncertainty about information quality could explain why firms disclose bad news while withholding good news. Uncertainty leads them to choose partial disclosure in many cases.

In conclusion, firms disclose or withhold specific information and consider the cost and uncertainty about the information to attain better market outcomes.

This paper helps predict firms' behavior when disclosing information in real life.

Original Journal: https://publications.aaahq.org/accounting-review/article/doi/10.2308/TAR-2023-0540/13146/Voluntary-Disclosure-When-Information-Quality-Is