Fresh Pick of the Day, June 5, 2014: “Why Firms Need to Balance ‘Hard’ and ‘Soft’ Information”

From Knowledge@Wharton – “It’s not the case that all information is good and we should just rush to maximum disclosure,” Edmans notes. Previous research in this area has generally assumed that all types of information are easily disclosed, and that the cost of disclosure is limited to the minimal expense of preparing and mailing documents. But the researchers’ paper shows that the actual cost may be much greater than the direct expenses associated with communicating information: Disclosure can distort the manager’s investment incentives. The source of this incentive effect is that, in real life, some types of information are easier to reveal than others.

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