Voluntary Disclosure and Strategic Stock Repurchases∗

We study the choice of disclosure and share repurchase strategies of informed managers. Using a model that captures how direct disclosures and share repurchases differentially impact short and long-term stock value, we ask when will they choose disclosure, or repurchases, or both. We find that both direct disclosure and share repurchase policies emerge in equilibrium in different regions of firm value. In particular, the range of possible firm values is endogenously demarcated into three intervals depending the channel of communication the manager chooses in equilibrium. Firms in the lowest value region neither disclose nor repurchase. Managers of firms with intermediate values disclose but do not repurchase. Finally, managers of firms with values in the highest region undertake share buybacks but do not disclose. Thus, the uppertailed disclosure region in classic voluntary disclosure models does not obtain in the presence of the repurchase option. We also show that it is never optimal to simultaneously disclose and repurchase. Our analysis suggests that the firm’s stock liquidity (in the sense of Kyle, 1985), is positively related to the optimal disclosure interval. JEL classification : G14, G23, G32