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Information Leaks and Voluntary Disclosure

We study firms’ voluntary disclosures in a world of potential information leaks. We find that managers adapt their disclosure strategy to the likelihood and expected scope of leaks. An increasing likelihood fosters voluntary disclosure if leaks merely expose the manager’s information endowment and impedes disclosure if leaks in addition uncover the content of the manager’s information. We identify a non-monotonic effect on voluntary disclosure if the scope of information leakage is uncertain, i.e., if leaks reveal the information content with positive probability. Our results imply that information leaks are likely to increase voluntary disclosure whenever investors have difficulties interpreting the economic consequences of the leaked information. This is typically the case in industries with complex business models and innovative products. In mature industries, leaked information replaces voluntary disclosure. Our findings may help explaining mixed empirical evidence on voluntary disclosure in different reporting environments.