Insider Horizon and Disclosure Policies

Abstract

We investigate the relation between insider horizon and disclosure policy. First, we develop and analyze a rational expectations model where insiders commit to a disclosure policy. Counter to casual intuition, insiders with a short-horizon prefer more disclosure and are willing to bear costs of disclosure to reduce information asymmetries among capital market participants. We then empirically test our predictions in the setting of newly public firms and firms where the CEO is approaching retirement. We find that firms with insiders that have a shorter horizon disclose more and experience lower information asymmetry. Our study contributes to the understanding of firms' disclosure choices by suggesting that the horizon of insiders shapes a firm's disclosure policy.

Keywords: Investment Horizon, Voluntary Disclosure, Disclosure Policy, IPO

JEL Classification: M40, G14, G24, G32, D83