This paper investigates partner selection and group formation in cooperative benchmarking, a practice of information sharing among firms to improve their operations. Firms gather preliminary information about potential partners only when the choice problem is difficult, and more information is gathered when there is more uncertainty. Based on an analysis of benchmarking benefits and costs, there is a unique equilibrium group structure characterized by a segregation of firms by their stock of technological information. It is argued that today's changing business environment tends to increase group size and the number of firms participating in cooperative benchmarking.

This paper analyzes how earnings and price are used in executive compensation contracts. Risk-averse shareholders collectively design a contract and individually trade in the stock market. In the optimal linear contract the use of earnings and price depends critically on incentive efficiency, i.e., how precisely the measures convey the true outcome. The relative weight of price to earnings exaggerates the true relative importance of price because price impounds traders' overall information while its informational value lies in the incremental information it provides. The use of price allows shareholders to share trading risks with managers.

This paper examines the issue of voluntary disclosure of information by firms with heterogeneous shareholders. It shows that in a rational expectations setting, better informed shareholders prefer less disclosure than less well‐informed shareholders. This is due to differences in the adverse risk‐sharing effect and the beneficial cost‐saving effect of disclosure among shareholders with different risk tolerances and information acquisition cost functions. The presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm's disclosure policy.

This paper examines the issue of voluntary disclosure of information by firms with heterogeneous shareholders. It shows that, in a rational expectations setting, better-informed shareholders prefer less disclosure than less well-informed shareholders. This is due to differences in the adverse risk-sharing effect and the beneficial cost-saving effect of disclosure among shareholders with different risk tolerances and information acquisition cost functions. The presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm's disclosure policy.

Pre-announcement information is private information gathered in anticipation of a public disclosure. Event-period information is private information useful in conjunction with the announcement itself. Typically rational models of trade are based exclusively on one type of information. Such models are less descriptive of real market settings and misspecified empirically. Therefore, we introduce a model of rational trade with both features and discuss its implications.

This paper suggests that earnings announcements provide information that allows certain traders to make judgements about a firm's performance that are superior to the judgements of other traders. As a result, there may be more information asymmetry at the time of an announcement than in nonannouncement periods. More information asymmetry implies that bid–ask spreads increase, suggesting that market liquidity decreases at the time of an earnings announcement. Furthermore, informed opinions resulting from public disclosure may lead to an increase in trading volume, despite the reduction in liquidity that accompanies announcements.

Public announcement, Preannouncements of information, Private information, Price reaction

This paper introduces a model in which the firm's returns depend on trading volume when the firm defers disclosure, because market makers use volume to draw inferences about better-informed investors' private information on firm value. In addition, we show that a firm's commitment to a policy of timely disclosure of a broader range of outcomes dampens the slope coefficient on volume in a Taylor expansion of the log of the absolute value of returns on volume. The reason for this is that when a firm commits to a policy of timely disclosure of a broader range of outcomes, the deferral of a report indicates that the outcome is extreme. This heightens adverse selection. In turn, this makes informed trade more costly and hence less likely, thereby rendering returns less dependent on trading volume as a source of information about firm value. This result predicts that firms committing to more disclosure should experience a smaller slope coefficient on trading volume. Thus, the slope coefficient offers a potential tool for measuring the economic consequences of shifts in disclosure regimes.

We study when it is appropriate to add a convex component such as stock options to an optimal, managerial compensation contract. We show that convexity is introduced when managers have moderate levels of relative risk aversion and decreasing absolute risk aversion. In addition, we study how convexity is affected as the distribution of outcomes becomes more skewed toward low outcomes. Here we show that while convexity increases when skewness is increased without regard to the effect on mean stock price, the opposite effect results when increases in skewness leave the mean stock price unchanged.