Does Public Disclosure Crowd Out Private Information Production

We investigate how public disclosure affects private information production and pricing efficiency. We consider the implementation of TRACE as an increase in public disclosure in the corporate bond market and use bond analyst reports to measure the private information production. We find that, when the public disclosure increases, there is a reduction in private information production, indicated by fewer bond analyst reports, fewer pages in each report, and smaller file sizes for each report. Moreover, increased public disclosure leads to less delay of bond prices, bond prices more closely approximating random walks, and shorter bond return drifts after bond analyst reports or credit rating changes. These effects are similar in bond groups sorted by liquidity, trading, and maturity. Our results highlight that while increased public disclosure crowds out private information production, it has a positive net effect on pricing efficiency.