Conversations Between Managers and Investors

Managers and investors frequently converse and exchange complementary private information. We develop a model to study the conversation dynamics between a myopic manager and a long-term investor. The opportunity of the investor to convey private information affects the manager's disclosure strategy by creating an option value of disclosure. In particular, while such an opportunity elicits more disclosures in response to a favorable message from the investor (e.g., a question), the anticipation of conversations crowds out early disclosure, and the overall disclosure likelihood is lower. However, both the manager and the investor prefer conversations, as they can economize on disclosure costs. Lastly, we highlight that, with conversation opportunities, higher proprietary costs lead to more disclosure. Our study has implications for empirical research on disclosure around meetings with investors (e.g., earnings conference calls), on the effects of proprietary costs, and on the real effects of financial markets