Internal Information Asymmetry and Decentralized Disclosure : Evidence from Textual Analysis of Company Responses to Investor Questions

We investigate how internal information asymmetry affects subordinate managers’ engagement in answering investor questions at interactive disclosure venues. We find that subordinates’ engagement is greater when internal information asymmetry is higher. Additionally, we find that the relation is stronger when the board is more independent and the CEO’s ownership stake is higher, and weaker when the CEO is overconfident. More importantly, we document that when internal information asymmetry is higher, subordinates’ answers are more specific and forward-looking relative to the CEO’s answers, as well as more dissimilar to the CEO’s answers and incrementally more useful in predicting future earnings. Collectively, our results suggest that decentralization facilitates the disclosure of costly-to-transfer internal information and mitigates the adverse effect of internal information asymmetry on external disclosure quality