Resolutions to the Information Disclosure Dilemma: Evidence from Divested Spin-Offs

Abstract

Managers face contradictory pressures of increasing the information opaqueness of their firms for competitive purposes while analysts and investors call for information transparency so they can understand and valuate the firm. We conceive, develop and test alternative resolutions to this “information disclosure dilemma” and its relationship to firm performance. One view posits that a mid-range point of opaqueness and transparency will be associated with the highest performance outcomes while the other view suggests that pursuing either independently is better. Data from a sample of 405 divested spin-offs and a matched control sample of new firms show that transparency or opaqueness is associated to higher performance than a mid-range of the two. Implications for information disclosure management, the boundaries of the opaqueness and transparency literatures, and divested spin-offs are offered.