Disclosure Dynamics and Investor Learning

This paper examines whether investor learning about profitability (i.e., the mean of earnings distribution) leads to persistence in disclosure decisions. A repeated single-period model shows that persistent beliefs lead Using forecast data, I structurally estimate and perform several counterfactual analyses. find that, when investors are assumed know profitability, management decisions significantly declines by 17%–27%. About 24% firms would have disclosed differently, resulting 3.9% net change amount information posterior variance) provided capital market. Collectively, results indicate importance understanding market consequences disclosures. was accepted Shiva Rajgopal, accounting.