Investment Opportunities, Market Feedback, and Voluntary Disclosure: Evidence from the Shale Oil Revolution

ABSTRACT Exploiting the U.S. shale oil revolution as a substantial, unexpected shock to investment opportunities for oil and gas (O&G) firms, we explore whether firms facing an uncertain investment decision adopt a voluntary disclosure policy that facilitates informational feedback from the equity market. Difference-in-differences tests show O&G firms increase (reduce) their issuance of capital expenditure (earnings) forecasts during the shale oil revolution relative to similar, capital-intensive firms. Consistent with managers using market reactions to proposed investment plans to gather information from informed traders, we find investment expenditures become more sensitive to market reactions to capex forecasts during the shale oil revolution period. Consistent with managerial learning improving investment decisions, we find a more pronounced positive relation between future operating performance and investment adjustments made in response to market reactions for O&G firms during the shale oil boom. Our evidence speaks to how managers tailor disclosures to promote informational feedback from prices. Data Availability: Data are available from public sources cited in the text. JEL Classifications: G10; G11; G31; M41.