Disclosure under Noisy Information Processing

This theoretical study introduces information processing noise as a friction into capital market disclosure models, overturning traditional conclusions about voluntary disclosure costs. The model shows that firms may achieve full disclosure even when facing strictly positive disclosure costs, and when full disclosure is not achieved, two types of equilibria typically exist. This study can explain mixed empirical results regarding proprietary cost assumptions, as well as phenomena such as ESG rating noise and high-cost disclosures that still affect market prices.