Price Discovery in Good and Bad Times: An Analysis of the Annual Corporate Disclosure Cycle

Prior research on strategic corporate disclosure in good times versus bad often produces divergent inferences when focusing on selected channels and different disclosure windows. In this paper, we instead study a comprehensive set of corporate disclosure channels over the annual disclosure cycle. Our approach enables us to quantify disclosure channels’ aggregate and individual impacts on price discovery in good news versus bad news years. At the aggregate level, we estimate that overall price discovery reaches the 50% mark more than two weeks sooner in good news years than in bad news years, and corporate disclosures account for roughly twice the price discovery in good news years (80%) than in bad news years (42%). At the individual level, earnings guidance, preannouncements, and periodic SEC filings contribute more in bad news years, while general press releases and reports of insider purchases drive the bulk of price discovery in good news years. We also find that in bad news years, positively-toned press releases substantially purge the price discovery effects of adverse news, with reports of insider purchases more than offsetting the effects of reports of insider sales. Furthermore, we estimate that information intermediaries’ overall contribution to price discovery is modest relative to firm disclosures, with analysts adding more to bad news while the media contributing more to good news. Collectively, by taking a holistic approach and focusing on the annual disclosure cycle, we provide novel evidence on the distinct dynamics of corporate disclosures in general and in individual channels, as well as their impact on firm information environment.