The Relevance Of Discretionary Disclosures: Predictive Value Versus Feedback Value

Abstract

This study contributes to the body of literature examining the role of discretionary disclosures. The primary theoretical contribution is a distinction between predictive value and feedback value. We use the Ohlson Model and examine the role of information as an endogenous variable in modeling the impact of disclosures on returns, which is a key methodological contribution to this stream of literature. Using a sample of 121 firms from the AIMR’s Corporate Information Committee for 1982-1994 we find that the expanded firm disclosures did possess predictive value, but they did not possess significant feedback value. These results have important policy implications since the relative costs and benefits of disclosures with predictive value differ from those with feedback value.