How Investor Variance Ambiguity Shapes a Firm's Disclosure Commitment

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Abstract
We study a risk-neutral firm's endogenous disclosure commitment before a fixed-precision signal is realized. A representative investor faces variance ambiguity, and the firm anticipates how disclosure changes the investor's worst-case valuation. Disclosure lowers the date-0 averages of the posterior mean and variance. The lower mean depresses the expected price, whereas the lower variance raises it. Two cases arise: costless disclosure is optimal at every degree of ambiguity, or a unique ambiguity threshold exists, with disclosure below it and nondisclosure above it. Thus, variance ambiguity can generate corporate opacity even when disclosure is costless.

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