Learning to Disclose: Disclosure Dynamics in the 1890s Streetcar Industry

74 Pages Posted: 18 Feb 2021

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Matthias Breuer

Columbia University

Robert C. Stoumbos

Columbia University - Columbia Business School

Date Written: December 30, 2020

Abstract

We study the descriptiveness of the “unravelling” prediction in the 1890s streetcar industry. In this historical setting, capital-intensive streetcar companies gain the opportunity to disclose their earnings to dispersed investors via a new, quarterly newspaper supplement. We document that a quarter of the companies withhold their earnings from the first supplement, inconsistent with the “unravelling” prediction. However, almost all these companies start disclosing within the next couple of supplements, with the relatively-better companies among the remaining non-disclosers initiating disclosure and leaving the pool of non-disclosers each quarter. We interpret these stylized facts through the lens of a disclosure model featuring level-k thinking. Our model estimates that a substantial share of the companies employs a lower level of strategic thinking in the first supplement. This deviation from rational expectations appears to explain the initial failure of the “unravelling” prediction. Over time, companies appear to adopt higher levels of thinking, contributing to the rapid convergence to an (almost) full disclosure equilibrium. Collectively, our evidence is consistent with market forces yielding an (almost) full disclosure equilibrium in the medium to long run through repetition and learning.

Keywords: Disclosure, Dynamics, Rational Expectations, Learning, History

JEL Classification: D82, D83, D84, D91, K22, L92, M41, M48, N21, N71

Suggested Citation

Bourveau, Thomas and Breuer, Matthias and Stoumbos, Robert C., Learning to Disclose: Disclosure Dynamics in the 1890s Streetcar Industry (December 30, 2020). Available at SSRN: https://ssrn.com/abstract=3757679 or http://dx.doi.org/10.2139/ssrn.3757679

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Matthias Breuer (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Robert C. Stoumbos

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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