A Theory of Hard and Soft Information ∗

We study optimal disclosure via two competing communication channels; hard information whose value has been verified and soft disclosures such as forecasts, unaudited statements and press releases. We show that certain soft disclosures may contain as much informa-tion as hard disclosures, and we establish that: (a) exclusive reliance on soft disclosures tends to convey bad news, (b) credibility is greater when unfavorable information is reported and (c) misreporting is more likely when soft information is issued jointly with hard infor-mation. We also show that a soft report that is seemingly unbiased in expectation need not indicate truthful reporting. We demonstrate that mandatory disclosure of hard information reduces the transmis-sion of soft information, and that the aggregation of hard with soft information will turn all information soft