This paper examines how public disclosure affects private inforamtion acquisition activity in a market economy. We analyze a setting where traders with short-term investment horizons are allowed to trade on their private information prior to a public disclosure. We demonstrate in this setting that public disclosure stimulates investment in private information acquisition. This result is shown to have implications for the magnitude of the pre-announcement and announcement price reactions to the disclosure.

Mary E. Barth, Maureen F. McNichols, Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites, Journal of Accounting Research, Vol. 32, Studies on Accounting, Financial Disclosures, and the Law (1994), pp. 177-209