Researcher releases paper on disclosure theory under noisy information processing
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Jeremy Bertomeu, Edwige Cheynel, and Peicong Hu released a disclosure theory paper under noisy information processing, which introduces information processing noise as a friction in capital market disclosure models, overturning the traditional conclusion on 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, there are typically two types of equilibria. This study can explain mixed empirical results regarding proprietary cost assumptions, as well as phenomena such as ESG rating noise and high costs that still affect market prices.
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- arXiv q-finDisclosure 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.
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