Why cheap talk corporate disclosure can be truthful.

What is it about?

Assumes corporate disclosure is cheap talk. But can still be truthful sometimes when there is discipline from a market, that can choose to access additional information if what the manager says is too good to be true. The key is the cost of accessing additional information is in an intermediate range. Implication: the bid-ask spread given good news is larger than given bad news.

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Why is it important?

Showing cheap talk can be truthful in a model of disclosure to a financial market yields testable implications. Highlights importance of the cost of seeking additional information being not too high, not too low.