Equilibrium Voluntary Disclosures when Firms Possess Random Multi-Dimensional Private Information

The aim of general purpose financial reporting is to provide information that is useful to investors, lenders, and other creditors. With this goal, regulators have tended to mandate increased disclosure. We show that increased mandatory disclosure can weaken a firm’s incentive to acquire and voluntarily disclose private information that is not amenable to inclusion in mandated reports. Specifically, we provide conditions under which a regulator, seeking to maximize the total amount of information provided to investors via both mandatory and voluntary disclosures, would mandate less informative and more conservative financial reports even in the absence of any direct costs of increasing informativeness. This result is robust to allowing the firm to make reports more informative and to imposing a nondisclosure cost or penalty on the firm. The results and comparative statics analysis contribute to our understanding of interactions between mandatory reporting and voluntary disclosure and demonstrate a novel benefit to setting accounting standards that mandate imperfectly informative reports. This paper was accepted by Suraj Srinivasan, accounting.

Download Full-text

Discussion: “Limits to Voluntary Disclosure in Efficient Markets”

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9601100308 ◽

1996 ◽

Vol 11 (3) ◽

pp. 388-391 ◽

Cited By ~ 2

Author(s):

Rick Antle

Keyword(s):

Capital Market ◽

Private Information ◽

Voluntary Disclosure ◽

One Dimension ◽

Efficient Markets ◽

Voluntary Disclosures ◽

Accounting Research ◽

Coding Schemes

This paper addresses a very important and rich topic for accounting research: what are the incentives for making voluntary disclosures to an efficient capital market when private information has more than one dimension? There are many aspects to this topic, and I will use this discussion as a vehicle for discussing four of them. In particular, this discussion addresses aggregation, coding schemes, auditing, and sender-receiver models. Particular aspects of the paper are used to illustrate various points about these general ideas.

Download Full-text

Voluntary Disclosure

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x8900400404 ◽

1989 ◽

Vol 4 (4) ◽

pp. 480-511 ◽

Cited By ~ 39

Author(s):

Alex Dontoh

Keyword(s):

Nash Equilibrium ◽

Empirical Research ◽

Private Information ◽

Voluntary Disclosure ◽

Market Price ◽

Market Equilibrium ◽

Voluntary Disclosures ◽

Unique Nash Equilibrium ◽

Future Outcomes ◽

Competitive Product

The paper investigates incentives for firms to voluntarily disclose private information about future outcomes. A voluntary disclosure model that encompasses a competitive product market equilibrium and where proprietary (disclosure costs) costs are endogenously determined is presented. Possible explanations for empirical phenomena such as why value-maximizing firms voluntarily disclose unfavorable information (disclosures that cause investors to lower their expectations of firm earnings) when such disclosures tend to result in significant market price declines is provided. Existence of a unique Nash equilibrium where firms exercise discretion over such disclosures is demonstrated, and implications for extant empirical research on voluntary disclosures are discussed.

Download Full-text

Does corporate governance compliance condition information asymmetries? Moderating role of voluntary disclosures

Journal of Asian Business and Economic Studies ◽

10.1108/jabes-07-2021-0085 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Samya Tahir ◽

Sadaf Ehsan ◽

Mohammad Kabir Hassan ◽

Qamar Uz Zaman

Keyword(s):

Corporate Governance ◽

Private Information ◽

Audit Committees ◽

Information Asymmetries ◽

Voluntary Disclosures ◽

Content Type ◽

Reporting Practices ◽

Institutional Owners ◽

Moderating Role

PurposeThis study examines the moderating effects of low and high levels of voluntary disclosures (VDs) between corporate governance and information asymmetry (IA).Design/methodology/approachThe study used PROCESS macro to construct bootstrap confidence intervals at the 95% level to estimate the model, and “simple slope analysis” to visualize the model.FindingsThe better corporate governance provides a monitoring mechanism that disseminates private information and reduces IA The effect of corporate governance on IA is contingent on the levels of VDs within a firm, and this relationship is strengthened when the level of VDs within a firm is high, and results remain consistent when levels of sub-indices are high. Additional analysis reveals that effective boards and audit committees reduce IA. Increased inside, an associated company, family and foreign ownership exacerbate IA, whereas institutional owners act as effective monitors to overcome informational disadvantages.Practical implicationsThe findings provide implications for policymakers to promote corporate governance and more relevant reporting practices as effective mechanisms for protecting shareholders' rights and attenuating IA in capital markets.Originality/valueThe study is valuable to understand the strength of the relationship between corporate governance and information asymmetries based on the moderating role of different VD levels.

Download Full-text

Shareholder Litigation and the Information Content of Management Voluntary Disclosure

The Accounting Review ◽

10.2308/accr-52651 ◽

2019 ◽

Vol 95 (5) ◽

pp. 279-298

Author(s):

Yuanyuan Ma

Keyword(s):

Information Content ◽

Private Information ◽

Voluntary Disclosure ◽

Legal Liability ◽

Bad News ◽

Good News ◽

Voluntary Disclosures ◽

Shareholder Litigation

ABSTRACT I study the information content of management voluntary disclosures disciplined by shareholder litigation. I model the litigation mechanism in which legal liabilities are based on the damages that shareholders suffer from buying a stock at an inflated price. I find that management does not fully reveal private information in equilibrium. Instead, their disclosures reveal only a range in which their private information lies. Thus, the precision of information is, to some extent, lost. Notably, increasing the severity of legal liability does not always reduce the loss of precision. In fact, when the legal liability reaches a certain level, more severe legal liability will result in less precise disclosures. I also find that good news and bad news have different precision. Specifically, good news is more precise than is bad news when legal liabilities are high, and bad news is more precise than is good news when legal liabilities are low.

Download Full-text