On the synergy between disclosure and investment beauty contests

- Decision makers often seek to make good investment choices that also coordinate with others in an industry.
- A desire to coordinate with others can incentivize a firm to provide public disclosures.
- Disclosures are made in order to establish common information and investment norms.
- Disclosing to others creates a richer information environment in an industry and can promote coordinated investment choices.
- Beauty contests and disclosures are complementary: each aspect is made more valuable because of the presence of the other.

Many investments are noted for their "beauty contest" features in that decision makers desire conformity with others׳ choices due to inherent complementarities. This paper examines the incentives of firms to take preemptive action and publicly disclose their investments in such beauty contests. In this case, it is the beauty contest desire for coordination that incentivizes a firm to disclose because doing so allows it to convey information that establishes norms and thereby influence subsequent actions of others. Disclosure recipients too benefit from this arrangement because they access additional information on which to base their decisions.