We study a dynamic voluntary disclosure setting where the manager’s information and the firm’s value evolve over time. The manager is not limited in her disclosure opportunities, but disclosure is costly. The results show that the manager discloses even if this leads to a price decrease in the current period. The manager absorbs this price drop in order to increase her option value of withholding disclosure in the future. That is, by disclosing today, the manager can improve her continuation value. The results provide a number of novel empirical predictions regarding asset prices and disclosure patterns over time. These include, among others, that disclosures are negatively correlated in time, and stock return skewness is negatively correlated with lagged returns for firms with low uncertainty over their future profitability, in more competitive industries, and in industries with less informative public news.

This paper presents a model in which investors price risk and a firm makes an investment to reduce its cash flow risk. Subsequently, the firm may or may not privately receive information about the future cash flow, whose disclosure is under its discretion. We show that the equilibrium cash flow precision increases with investor risk aversion, but decreases with the likelihood that the firm has private information and the quality of that information. In addition, the equilibrium probability of disclosure increases when the firm is more likely to have higher-quality private information, but it may increase or decrease when investor risk aversion increases. Using these comparative statics, we rationalize mixed empirical findings on the relation between risk and disclosure as equilibrium outcomes. The model is extended to a setting where the firm also makes an investment to increase the mean of its future cash flow.