With a Grain of Salt: Investor Reactions to Uncertain News and (Non)disclosure

Jonathan Libgober; Beatrice Michaeli; Elyashiv Wiedman

doi:10.1016/j.jacceco.2025.101802

With a Grain of Salt: Investor Reactions to Uncertain News and (Non)disclosure

Jonathan Libgober
, Beatrice Michaeli^*
, Elyashiv Wiedman

^*Corresponding author for this work

BA Accounting department

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

We examine how external news with uncertain precision influences investor beliefs, market prices, and corporate disclosures. We find that good external (and public) news is taken with a grain of salt — specifically, it is perceived as unlikely to be precise — confirming investor beliefs that nondisclosing managers are hiding unfavorable (private) information. As a result, better external news may paradoxically lead to lower market valuation. Overall, we find that, amid management silence, equilibrium stock prices are nonmonotonic in (and react asymmetrically to) external news. We also predict that the probability of disclosure depends on the timing of the disclosure, the positivity of external news, and the financial strength of the industry.

Original language	English
Article number	101802
Journal	Journal of Accounting and Economics
Volume	81
Issue number	1
DOIs	https://doi.org/10.1016/j.jacceco.2025.101802
State	Published - Feb 2026

Bibliographical note

Publisher Copyright:
© 2025 The Authors

Keywords

Asymmetric price reaction
Price nonmonotonicity
Probability of disclosure
Uncertain precision
Voluntary disclosure

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10.1016/j.jacceco.2025.101802

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title = "With a Grain of Salt: Investor Reactions to Uncertain News and (Non)disclosure",

abstract = "We examine how external news with uncertain precision influences investor beliefs, market prices, and corporate disclosures. We find that good external (and public) news is taken with a grain of salt {\textemdash} specifically, it is perceived as unlikely to be precise {\textemdash} confirming investor beliefs that nondisclosing managers are hiding unfavorable (private) information. As a result, better external news may paradoxically lead to lower market valuation. Overall, we find that, amid management silence, equilibrium stock prices are nonmonotonic in (and react asymmetrically to) external news. We also predict that the probability of disclosure depends on the timing of the disclosure, the positivity of external news, and the financial strength of the industry.",

keywords = "Asymmetric price reaction, Price nonmonotonicity, Probability of disclosure, Uncertain precision, Voluntary disclosure",

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N2 - We examine how external news with uncertain precision influences investor beliefs, market prices, and corporate disclosures. We find that good external (and public) news is taken with a grain of salt — specifically, it is perceived as unlikely to be precise — confirming investor beliefs that nondisclosing managers are hiding unfavorable (private) information. As a result, better external news may paradoxically lead to lower market valuation. Overall, we find that, amid management silence, equilibrium stock prices are nonmonotonic in (and react asymmetrically to) external news. We also predict that the probability of disclosure depends on the timing of the disclosure, the positivity of external news, and the financial strength of the industry.

AB - We examine how external news with uncertain precision influences investor beliefs, market prices, and corporate disclosures. We find that good external (and public) news is taken with a grain of salt — specifically, it is perceived as unlikely to be precise — confirming investor beliefs that nondisclosing managers are hiding unfavorable (private) information. As a result, better external news may paradoxically lead to lower market valuation. Overall, we find that, amid management silence, equilibrium stock prices are nonmonotonic in (and react asymmetrically to) external news. We also predict that the probability of disclosure depends on the timing of the disclosure, the positivity of external news, and the financial strength of the industry.

KW - Asymmetric price reaction

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KW - Probability of disclosure

KW - Uncertain precision

KW - Voluntary disclosure

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With a Grain of Salt: Investor Reactions to Uncertain News and (Non)disclosure

Abstract

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Keywords

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