Abstract
Voluntary disclosures by some firms seem to provoke other firms to make related disclosures. After Citibank announced the extent to which its Third World loans were in default, many other money center banks did likewise.' After Chambers Development took a write-off for their waste disposal arrangements, many other waste management firms did too.2 Several insurance companies successively disclosed their potential liability from hurricanes Hugo3 and Andrew,4 and the Los Angeles earthquakes.5 Besides having disclosures that occur in herds, there appears to be another characteristic common to each of these examples: the disclosures were motivated by managers' attempt to influence the financial market's assessment of the firms' values, rather than the product market behavior of other firms. In this paper, we propose a theory to explain such disclosure dynamics, when each firm selects a disclosure policy to maximize its expected price at each point in time, while taking into account that other firms behave similarly.
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