Delayed Financial Disclosure: Mexico's Recent Experience

After several years of strong economic performance, Mexico suddenly suffered a financial crisis at the end of 1994. Within one month, the value of the peso fell by more than 35 percent and Mexican international reserves were depleted to the point that default on dollar-indexed sovereign debt looked imminent. One issue that has surfaced since the crisis is whether the government strategically delayed the release of data on its holdings of international reserves in the months before the crisis. Why are international reserves significant? From the perspective of investors, the stock of international reserves provides valuable information about the expected return on their investments. Investors may construe a low stock of international reserves as bad news that signals an impending devaluation or a possible default on sovereign debt, and they may choose to liquidate their holdings of Mexican securities. In this article, we document that there was bad news about Mexican international reserves in 1994 and that the public release of this news was, in fact, delayed. We contend that this delay was within the range of the market's expectation based on its experience with Mexican reporting practices, but that the delay might have been an equilibrium strategic decision by Mexican policymakers in an environment with private information.