The Dynamics of Concealment

Firm managers likely have more information than outsiders. If managers strategically conceal information, market uncertainty will increase. We develop a dynamic corporate disclosure model, estimating the model using the management earnings forecasts of US public companies. The model, based on the buildup of reputations by managers over time, matches key facts about forecast dynamics. We find that 80% of firms strategically manage information, that managers have superior information around half of the time, and that firms conceal information about 40% of the time. Concealment increases market uncertainty by just under 8%, a sizable information loss.