scholarly journals Voluntary disclosure when private information and disclosure costs are jointly determined

2021 ◽  
Author(s):  
Jung Min Kim ◽  
Daniel J. Taylor ◽  
Robert E. Verrecchia
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Disclosure Costs

scholarly journals Correction to: Voluntary disclosure when private information and disclosure costs are jointly determined

2021 ◽  
Author(s):  
Jung Min Kim ◽  
Daniel J. Taylor ◽  
Robert E. Verrecchia
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Link Type ◽  
Disclosure Costs

A Correction to this paper has been published: 10.1007/s11142-021-09623-7

Do Managers Disclose or Withhold Bad News? Evidence from Short Interest

2018 ◽  
Vol 94 (3) ◽  
pp. 1-26 ◽  
Author(s):  
Dichu Bao ◽  
Yongtae Kim ◽  
G. Mujtaba Mian ◽  
Lixin (Nancy) Su
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Data Availability ◽  
Bad News ◽  
General Tendency ◽  
Litigation Risk ◽  
Novel Approach ◽  
Conflicting Evidence ◽  
Short Interest

ABSTRACT Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers' private bad news (residual short interest) and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news. Data Availability: Data used in this study are available from public sources identified in the study.

Institutional Dual-Holders and Managers' Earnings Disclosure

2021 ◽  
Author(s):  
Leila Peyravan ◽  
Regina Wittenberg-Moerman
Keyword(s):  
Adverse Effect ◽  
Commercial Bank ◽  
Private Information ◽  
Voluntary Disclosure ◽  
Information Environment ◽  
Earnings Forecast ◽  
Excess Returns ◽  
Lending Relationships ◽  
Playing Field ◽  
Information Advantage

We investigate how institutional (non-commercial bank) investors that simultaneously invest in a firm's debt and equity (dual-holders) influence the firm's voluntary disclosure. Because institutional dual-holders trade on private information gleaned through lending relationships, we predict and find that borrowers increase earnings forecast disclosure to reduce these investors' information advantage following the origination of loans with their participation. We also show that the increase in disclosure is stronger when the access to a borrower's private information endows dual-holders with a greater information advantage and when the consequences of this access are likely to be more pronounced. We further find that institutional dual-holders earn excess returns when trading equity of non-guider firms following loan origination, but not when firms issue guidance, confirming that earnings disclosure helps level the playing field among investors. Our findings highlight that firms actively use disclosure to mitigate the adverse effect of dual-holders on their information environment.

Costly Voluntary Disclosure in a Signaling Game

2019 ◽  
Vol 15 (2) ◽  
Author(s):  
Paul Pecorino ◽  
Mark Van Boening
Keyword(s):  
Private Information ◽  
Experimental Analysis ◽  
Voluntary Disclosure ◽  
Signaling Game ◽  
Strong Case

Abstract We conduct an experimental analysis of pretrial bargaining, while allowing for the costly disclosure of private information in a signaling game. Under the theory, 100 % of plaintiffs with a weak case are predicted to remain silent, while 100 % of the plaintiffs with a strong case are predicted to voluntarily disclose their type. We find that 75 % of weak plaintiffs remain silent and 67 % of strong plaintiffs reveal their type. In line with theory, weak plaintiffs who reveal their type receive a lower payoff, while strong plaintiffs who reveal their type receive a higher payoff. Plaintiffs with a strong case who reveal their type have a dispute rate which is 50 % points lower than strong plaintiffs who remain silent. Because plaintiffs who reveal their type cannot extract the entire surplus from settlement from the defendant, the incentive to engage in voluntary disclosure is weaker empirically than it is in theory.

Discretionary Aggregation

2016 ◽  
Vol 92 (1) ◽  
pp. 73-91 ◽  
Author(s):  
Michael Ebert ◽  
Dirk Simons ◽  
Jack D. Stecher
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Bad News ◽  
Good News ◽  
News Source ◽  
Hide Information ◽  
Many Sources ◽  
Jel Classifications

ABSTRACT We study a disclosure decision for a firm's manager with many sources of private information. The presence of multiple numerical signals provides the manager with an opportunity to hide information via aggregation, presenting net amounts in order to show information in its best light. We show that this ability to aggregate fundamentally changes the nature of voluntary disclosure, due to the market's inability to verify that a report is free of strategic aggregation. We find that, in equilibrium, the manager fully discloses if and only if the manager's private information makes the firm look sufficiently weak. By separating bad news from good news, a disaggregate report informs the market of as much offsetting news as possible, revealing how close the news is to a neutral benchmark. The result is, therefore, pooling at the top and separation at the bottom, the opposite of what transpires with a single news source. JEL Classifications: M41; D82; D83.

Competing Information Sources

2017 ◽  
Vol 93 (4) ◽  
pp. 151-176 ◽  
Author(s):  
Eti Einhorn
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Information Sources ◽  
Equilibrium Shape ◽  
Public And Private ◽  
Full Disclosure ◽  
Additional Information ◽  
Disclosure Strategy ◽  
Selective Disclosure

ABSTRACT This study analyzes corporate voluntary disclosures to the capital market in the presence of competing information sources, from which traders can subsequently obtain additional public and private information. The analysis demonstrates that the anticipated access of traders to additional information sources may significantly alter the voluntary disclosure strategy of firms. It may explain a deviation from the conventional full disclosure equilibrium to equilibrium with partial and selective disclosure. It may also lead to an untypical equilibrium shape, where any information content can be disclosed and can be withheld with a positive probability, and where the stock price reflects a pricing discount upon disclosure rather than in its absence. JEL Classifications: D82; G10; M41.

BIASED VOLUNTARY DISCLOSURE, EARNINGS TARGET, AND PRODUCT MARKET COMPETITION

2017 ◽  
Vol 12 (03) ◽  
pp. 1750014 ◽  
Author(s):  
HAO-CHANG SUNG ◽  
CHUNSHENG YUAN
Keyword(s):  
Private Information ◽  
Voluntary Disclosure ◽  
Market Competition ◽  
Product Market ◽  
Product Market Competition ◽  
Bertrand Competition ◽  
Cost Information ◽  
Oligopoly Model ◽  
Earnings Targets ◽  
Oligopoly Competition

Accounting survey and anecdotal evidence suggest that firms could voluntarily disclose their private information to improve the credibility of earnings targets and to signal meeting /beating of earnings targets. In addition, voluntarily issuing private information can be characterized as a way to influence product market competition. The motivation of this study is to investigate the effect of earnings target on a firm’s voluntary disclosure decision and its impact on oligopoly competition. We consider a two-stage oligopoly model with one-sided incomplete information in which a firm has private information on its type and its marginal cost. We show that a firm can choose a downward biased report about its cost information in Cournot competition. This could increase this firm’s outputs and profits and meet its earnings target as well. In this sense, the effect of earnings target on voluntary disclosure can improve the firm’s competitiveness. In Bertrand competition, a firm can choose an upward biased report about its cost information, and this allows both firms to boost their price level in oligopoly competition and thus both firms can obtain higher profits. In this case, the effect of earnings target on voluntary disclosure could facilitate implicit collusion in price-setting under Bertrand competition. This paper contributes to the research on voluntary disclosure theory in terms of how earnings targets affect product market competition through distorting a firm’s voluntary disclosure decision.

A Rationale for Imperfect Reporting Standards

2021 ◽  
Author(s):  
Henry L. Friedman ◽  
John S. Hughes ◽  
Beatrice Michaeli
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Voluntary Disclosure ◽  
Accounting Standards ◽  
Direct Costs ◽  
General Purpose ◽  
Mandatory Reporting ◽  
Comparative Statics ◽  
Voluntary Disclosures ◽  
Financial Reports

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.

Discussion: “Limits to Voluntary Disclosure in Efficient Markets”

1996 ◽  
Vol 11 (3) ◽  
pp. 388-391 ◽  
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.

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