Endogenous Information Flows and the Clustering of Announcements † By Viral

2955 One of the most important ingredients in the process of price discovery in financial markets is the flow of new information. The importance of information flow is perhaps most apparent during times of market “crisis,” when it often seems that bad news is being reported simultaneously from multiple sources. This clustering of news could occur because firms learn more during bad times, or because firms strategically time the release of information. Indeed, it has long been recognized in the literature that corporate news disclosures are controlled by self-interested agents, and a number of theoretical and empirical analyses have found support for the idea that, given this discretion, managers may choose to delay the release of bad news. As hinted above, in addition to delays in the release of information, casual observation suggests that disclosures of bad news are often clustered in bad times. While it is not surprising that firms’ news is affected by market and sector conditions (given the correlation of their cash flows), the timing of the announcements is