FACULTÉ & RECHERCHE

In this paper we analyze a model which addresses two stylized facts which have received little attention in disclosure theory. (a) Information that is acquired for internal decision-making can subsequently be disclosed to outside investors who can use it to update their assessment of the firm’s prospects. Thus, the decision to gather information in the first place does not only depend on the decision value of information. (b) Information disclosed by firms is only one element of the information environment upon which investors can draw. This setting creates an interaction between firms’ information gathering and disclosure decisions as well as alternative sources of information. We identify an equilibrium structure which we call a Countersignaling equilibrium in which only average firms acquire information whereas good and bad firms do not. We show that while several equilibria can coexist, a Countersignaling equilibrium is often the economically most efficient one.