Precision of Investor Information and Financial Disclosure

This study investigates a situation in which the precision of an inside investor's private signal increases with the size of his shareholding. Intuitively, an insider with a more informative signal regarding the prospects of a project may be expected to involve himself in larger information-motivated transactions and enjoy greater profits. We suggest that such an advantage, nevertheless, may be alleviated or even eliminated when the financial statements accompanied by disclosure of either his shareholdings or the distribution of block shareholdings reveal the extent to which the insider is informed. The market may optimize its reaction to the order flows accordingly.