This paper studies how public information regarding a firm’s riskiness affects investors’ incentives to acquire information about the firm and the firm’s ability to learn decision-useful information from its price. I find that risk information complements investor learning by informing investors of when it is most lucrative to investigate the firm, thereby reducing liquidity. Furthermore, risk information causes the firm’s price to contain more information when the firm’s investment decisions have the greatest impact on its value, thereby improving real efficiency. Extensions of the model suggest that the impact of risk information on real efficiency may deteriorate when the firm’s manager is excessively exposed to idiosyncratic risk, when the firm’s shareholders are excessively averse to such risk, or when the disclosure concerns a “downside risk.” In sum, my analysis suggests that information regarding firms’ expected values and information regarding firms’ risks significantly differ in their effects on the capital market.

We develop a model in which a firm's manager can voluntarily disclose to privately informed investors. In equilibrium, the manager only discloses sufficiently favorable news. If the manager is known to be informed but disclosure is costly, the probability of disclosure increases with market liquidity and the stock trades at a discount relative to expected cash flows. However, when investors are uncertain about whether the manager is informed, disclosure can decrease with market liquidity and the stock can trade at a premium relative to expected cash flows. Moreover, contrary to common intuition, public information can crowd in more voluntary disclosure.

We study debt and equity valuation when investors have private information and may exhibit differences of opinion. Our model generates several predictions that are consistent with empirical evidence but difficult to reconcile with traditional models. Belief dispersion relates to expected equity and debt returns in opposite directions. Similarly, expected debt (equity) returns typically increase (decrease) with default risk, though these relationships reverse for firms close to bankruptcy. Firms’ capital structures affect their valuations even without classical capital structure frictions (e.g., tax shields, distress costs) – when liquidity is higher in the equity than in the debt market, leverage can raise firm value.