Price Rigidities and the Value of Public Information

Firms' inflexibility in adjusting output prices to input-cost shocks exacerbates information asymmetry between firm insiders and outsiders, but the government's disclosure of economic statistics mitigates this problem. We measure the public visibility of firms' input costs using a combination of production network and publication of producer-price indices by the Bureau of Labor of Statistics (BLS). Input-cost visibility reduces inflexible-price firms' probability of informed trading, the bid-ask spread, option-implied volatility, and analyst forecast dispersion, but these results do not hold for flexible-price firms. During conference calls hosted by inflexible-price firms, outsiders are less likely to ask questions about future input costs if the firm's input cost is more publicly available. To establish causality, we exploit an exogenous coverage expansion by the Office of Publications at BLS in January 2004