A Theory of Disclosure Timing

We develop a model of disclosure timing in which the firm can commit to disclose its revenues at a fixed date (a time-based disclosure policy) or after a certain number of transactions have occurred (a news arrival-based disclosure policy). We show that the firm trades off price variance and “internalization” when making its disclosure timing decision: postponing the disclosure date increases the impact that the disclosure will have on prices, but limits the time horizon over which the firm can internalize the benefits of this price movement after the disclosure. With time-based disclosure, more uncertainty over beliefs induces front-loaded (earlier) disclosure. When the disclosure policy is arrival-based, the threshold is relatively more stringent when individual transactions contain less information. Finally, we show that the general optimal disclosure timing policy prescribes a relatively high disclosure threshold early on, but as time goes by without disclosure, the threshold becomes ever more lenient, up to a point where the policy leads to unraveling.