Talk Less, Learn More: Strategic Disclosure in Response to Managerial Learning from the Options Market

Journal of Accounting Research Forthcoming

78 Pages Posted: 25 Jul 2019 Last revised: 19 Apr 2021

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Xin Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: April 18, 2021

Abstract

We examine how options trading affects voluntary corporate disclosure, so that we can shed light on whether managers’ potential learning from the options market induces them to withhold disclosure. We find that options trading reduces the likelihood and frequency of management earnings forecasts, suggesting that firms that have active options trading on their stock make fewer voluntary disclosures. This finding is in accordance with the theoretical prediction that managers strategically reduce disclosure to avoid crowding out informed trading, which can give them informative feedback for their decision-making. In support of the managerial learning channel, we document a real effect of reduced disclosure: when managers disclose less, options trading has a stronger positive effect on firm investment efficiency. The more pronounced effect of options trading on management earnings forecasts when the need for managerial learning is higher further supports the learning channel.

Keywords: Options trading; Information feedback; Managerial learning; Management earnings forecasts; Voluntary disclosure

JEL Classification: G12; G14; G20; M40; M41

Suggested Citation

Chen, Yangyang and Ng, Jeffrey and Yang, Xin, Talk Less, Learn More: Strategic Disclosure in Response to Managerial Learning from the Options Market (April 18, 2021). Journal of Accounting Research Forthcoming, Available at SSRN: https://ssrn.com/abstract=3425801 or http://dx.doi.org/10.2139/ssrn.3425801

Yangyang Chen (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Xin Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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