Voluntary versus mandatory disclosure

Bertomeu, Jeremy; Vaysman, Igor; Xue, Wenjie

doi:10.1007/s11142-020-09579-0

Cited by 40 publications

(15 citation statements)

References 54 publications

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“…The common intuition in the existing literature is that prior public information and voluntary disclosure are substitutes, especially when they concern the same underlying fundamental shocks (e.g., Verrecchia (1990), Bertomeu, Vaysman, and Xue (2021)). 9 Our analysis suggests that these two types of information may instead be complementary when investors are privately informed.…”

Section: Related Literaturementioning

confidence: 99%

Disclosing to Informed Traders

BANERJEE,

MARINOVIC,

SMITH

2023

The Journal of Finance

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We develop a model in which a firm's manager can voluntarily disclose to privately informed investors. In equilibrium, the manager only discloses sufficiently favorable news. If the manager is known to be informed but disclosure is costly, the probability of disclosure increases with market liquidity and the stock trades at a discount relative to expected cash flows. However, when investors are uncertain about whether the manager is informed, disclosure can decrease with market liquidity and the stock can trade at a premium relative to expected cash flows. Moreover, contrary to common intuition, public information can crowd in more voluntary disclosure.

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Section: Related Literaturementioning

confidence: 99%

Disclosing to Informed Traders

BANERJEE,

MARINOVIC,

SMITH

2023

The Journal of Finance

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“…The implications of our theory hold generally in settings wherein firms encounter high levels of managerial myopia. 9 A notable exception is Bertomeu, Vaysman, and Xue [2021], who argue that mandatory disclosure is beneficial because it alleviates the negative externality of disclosure costs. Whereas Bertomeu, Vaysman, and Xue [2021] focus on whether disclosure should be mandatory when disclosure is always costly, we focus on whether certification should be mandatory when (uncertified) disclosure is costless, and we explicitly consider a real effects setting.…”

Section: Related Literaturementioning

confidence: 99%

The Value of Mandatory Certification: A Real Effects Perspective

Jiang

Xin

Xiong

2022

J of Accounting Research

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We study the real effects of certification to demonstrate the value of mandatory certification over and above mandatory disclosure in enhancing investment efficiency. In our model, a firm's manager selects a project to maximize the firm's short‐term stock price, which is a function of her certification and disclosure decisions about the outcome of the project. Although the manager might be either forthcoming or strategic with regard to the disclosure of her private information, she can strategically choose whether to incur a cost or not to certify her disclosure, unless mandated. The manager always selects the first‐best project when both certification and disclosure are mandatory. However, when certification is voluntary, project selection is inefficient. In addition, mandating disclosure without mandating certification can lead to lower investment efficiency than mandating neither. In justifying why mandatory certification is beneficial for public firms, our results offer a note of caution regarding the contemplated regulatory moves for increased disclosures by public firms without corresponding certification requirements, for example, the recent SEC proposal requiring extensive climate‐related disclosure.

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“…Higher reporting quality of these mandatory filings (10-K filings in my empirical analysis) does not necessarily increase the overall quality of information. Mandatory reporting and disclosure may change firms' incentives to disclose voluntarily (Bertomeu et al 2021a;Bertomeu et al 2021c;Friedman et al 2020;Friedman et al 2022). Bertomeu and Cheynel (2015) make the more general point that accounting quality does not necessarily mean more investment efficiency.…”

Section: Chapter 7: Conclusionmentioning

confidence: 99%

Regulatory Oversight and Reporting Quality: Evidence from SEC Office Assignment Change

Pan

2022

SSRN Journal

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Voluntary versus mandatory disclosure

Cited by 40 publications

References 54 publications

Disclosing to Informed Traders

Disclosing to Informed Traders

The Value of Mandatory Certification: A Real Effects Perspective

Regulatory Oversight and Reporting Quality: Evidence from SEC Office Assignment Change

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