Voluntary Disclosure and Industry Fluctuations

This paper presents a theory that relates industry business fluctuations, or cycles, to firms' voluntary disclosure and industry concentration. In the model, a firm may be informed about market size in advance of its competitors and decide whether or not to publicly disclose that information. We examine the cyclical behavior of disclosures, and their association with price-setting behavior and industry profits. We show that, in industries that are highly concentrated and/or feature lower cost of capital, no-disclosure is prevalent and associated with acyclical product prices and higher profits. Otherwise, disclosure occurs in normal times, while no disclosure occurs prior to either sharp industry expansions or industry declines. Consequently, strategic disclosure can work to reduce information available and dampen some of the effects of industry fluctuations.