Promotional Press Releases and Investor Processing Costs

Abstract

Prior research largely treats press releases as a disclosure channel used to communicate with investors. However, press releases can also fulfill a promotional role used to improve the firm’s public image. We use topic modeling to provide novel evidence on the types of press releases firms issue, and categorize press releases as either investor-focused or promotional. Based on theories of rational inattention and disclosure processing costs, we predict and find that firms’ recent high usage of this disclosure channel to self-promote is associated with less efficient (i.e., smaller and slower) reactions to investor-focused disclosures for large firms, but more efficient reactions for small firms. These results appear, at least in part, to be attributable to market attention effects. Our findings offer several contributions to the literature on disclosure processing costs.