Using Voluntary Disclosure Intensity to Infer the Precision of Managements Vision

Shin (2006) has argued that in order to understand the equilibrium patterns of corporate disclosure, it is necessary for researchers to work within an asset pricing model framework in which corporate disclo-sures are endogenously determined. Furthermore, he argues that with-out such a framework optimal disclosure strategies may seem counter-intuitive. With this in mind, we generalize the Dye (1985) and Penno (1997) upper-tailed disclosure models, so that managements strategic disclosure behaviour can be shown to result in an optimal observable disclosure intensity. We show why a higher equilibrium disclosure in-tensity may need to be interpreted as implying management has less precise forecasts of future \u85rm value (hence the precision of manage-ments vision of the title). The derived results call into question the speci cation of empirical studies which test whether \u85rms with higher disclosure intensity will face a lower cost of capital. Working within a generalized Dye-Penno framework this research shows why in equilib-rium the converse case applies. 1