Abstract
The present study develops a model of the firm's decision to release information which may leave it at a competitive disadvantage, and tests the implications of the model. The model predicts, and the tests document, generally direct relations between the levels of traditional financial signals and market competition, indicating that greater levels of financial signalling occur when there is more market competition. As such the model provides an explanation for the cross-sectional variability in the levels of such traditional financial signals as debt level and dividend payout. Additionally, the model predicts and the tests document the presence of abnormal returns in firms about which there is little information in the market, suggesting that the level of market competition may contribute to a small firm effect.
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