Does Public Disclosure Crowd Out Private Information Production?

Abstract

Using a natural experiment of the staggered dissemination of trading information in the corporate bond market, we find that when public disclosure increases, private information production reduces. The reduction in information production is indicated by fewer bond analyst reports, fewer pages in each report, and smaller file sizes. Increased public disclosure leads to less delay of bond prices, bond prices more closely approximating random walks, and shorter bond return drifts after bond analyst reports or credit rating changes. Our results highlight that while increased public disclosure crowds out private information production, it has a positive net effect on pricing efficiency.