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Voluntary versus mandatory disclosure

Author

Listed:
  • Jeremy Bertomeu

    (Washington University)

  • Igor Vaysman

    (Baruch College)

  • Wenjie Xue

    (National University of Singapore)

Abstract

We develop a theory of asymmetries between voluntary and mandatory disclosure. Efficiently designed mandatory disclosure policies are substitutes for excessive voluntary disclosures. The efficient policy takes the form of a lower threshold below which firms must disclose bad news and an upper threshold above which firms voluntarily disclose good news. Hence mandatory disclosures are asymmetric and feature conservative reporting of bad news. The threshold to recognize bad news increases when information is more precise. We also characterize interactions between disclosures and real decisions in environments where information has social value: investment decisions, optimal liquidations, and adverse selection in a lemons market.

Suggested Citation

  • Jeremy Bertomeu & Igor Vaysman & Wenjie Xue, 2021. "Voluntary versus mandatory disclosure," Review of Accounting Studies, Springer, vol. 26(2), pages 658-692, June.
    • Handle: RePEc:spr:reaccs:v:26:y:2021:i:2:d:10.1007_s11142-020-09579-0
    DOI: 10.1007/s11142-020-09579-0
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    References listed on IDEAS

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    Cited by:

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    2. Su, Fei & Guan, Mengyao & Liu, Yujie & Liu, Jia, 2024. "ESG performance and corporate fraudulence: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    3. Hao, Jinji, 2024. "Disclosure regulation, cost of capital, and firm values," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    4. Jeremy Bertomeu & Edwige Cheynel & Davide Cianciaruso, 2021. "Strategic Withholding and Imprecision in Asset Measurement," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1523-1571, December.
    5. You, Linqing & Chen, Zhuoqiong, 2022. "A theory of firm opacity and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 145(C).

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    More about this item

    Keywords

    Disclosure regulations; Securities laws; Standards; Conservatism; Mechanism design;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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