Does Disclosure Improve Efficiency?

This paper investigates the efficiency consequences of firm disclosure. Using accounting and financial data in the Chinese market, the largest emerging market dominated by noise traders, we find that disclosure attracts noise trading and reduces the amount of information learned by firms from market prices, which in turn harms investment efficiency. Our results indicate that disclosure can negatively affect market efficiency and real investment performance in markets where noise trading increases with disclosure. Our results shed new lights on the dark side of disclosure for both informational and allocative efficiency