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Bias and the Commitment to Disclosure

Author

Listed:
  • Mirko S. Heinle

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Robert E. Verrecchia

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

This paper studies the propensity of firms to commit to disclose information that is subsequently biased, in the presence of other firms also issuing potentially biased information. An important aspect of such an analysis is the fact that firms can choose whether to disclose or withhold information. We show that allowing the number of disclosed reports to be endogenous introduces a countervailing force to some of the empirical predictions from the prior literature. For example, we find that as more firms issue reports or as the correlation across firms’ cash flows increases, the firm biases its report less. However, when we treat firms’ disclosure choices as endogenous, we show that the number of firms that commit to disclose decreases as the correlation across these cash flows increases, and this, in turn, offsets the direct effect of the correlation on bias. This paper was accepted by Mary Barth, accounting .

Suggested Citation

  • Mirko S. Heinle & Robert E. Verrecchia, 2016. "Bias and the Commitment to Disclosure," Management Science, INFORMS, vol. 62(10), pages 2859-2870, October.
    • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:10:p:2859-2870
    DOI: 10.1287/mnsc.2015.2283
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    References listed on IDEAS

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    2. Lee, Kyounghun & Oh, Frederick Dongchuhl, 2022. "Mandatory disclosure, investment, and private benefits of control," Economics Letters, Elsevier, vol. 216(C).
    3. Andrew B. Jackson & Brian R. Rountree & Konduru Sivaramakrishnan, 2017. "Earnings co-movements and earnings manipulation," Review of Accounting Studies, Springer, vol. 22(3), pages 1340-1365, September.
    4. Christian Blecher, 2019. "The influence of uncertainty on the standard-setting decision between fair value and historical cost accounting under asymmetric information," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 47-72, July.
    5. Andrew B. Jackson & Chao Li & Richard D. Morris, 2020. "Earnings Co‐movements and the Informativeness of Earnings," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 295-319, September.
    6. Xiong, Yan & Yang, Liyan, 2021. "Disclosure, competition, and learning from asset prices," Journal of Economic Theory, Elsevier, vol. 197(C).
    7. Maria Cleofe Giorgino & Enrico Supino & Federico Barnabè, 2017. "Corporate Disclosure, Materiality, and Integrated Report: An Event Study Analysis," Sustainability, MDPI, vol. 9(12), pages 1-15, November.
    8. Hao, Jinji, 2024. "Disclosure regulation, cost of capital, and firm values," Journal of Accounting and Economics, Elsevier, vol. 77(1).

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