Voluntary Disclosure Around Asset Divestitures

Abstract

The existence of many markets that a firm simultaneously accesses creates information transfers, wherein the price formed in one market reveals information to another. Specifically, when the firm divests an asset, facilitating the information transfer from the firm's stock market to the divestiture market may be valuable to the firm. With such interaction between markets, the usual intuition of disclosures enhancing information does not always hold. Disclosures may create distracting noise and obscure information signals revealed by the firm's stock price and suppress the information transfer. In such a situation, the firm may withhold disclosure -- even ones whose content may have a positive effect on its valuation -- not to hide anything, but to facilitate the information transfer.