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Voluntary disclosure when private information and disclosure costs are jointly determined

Author

Listed:
  • Jung Min Kim

    (University of Pennsylvania)

  • Daniel J. Taylor

    (University of Pennsylvania)

  • Robert E. Verrecchia

    (University of Pennsylvania)

Abstract

Classical models of voluntary disclosure feature two economic forces: the existence of an adverse selection problem (e.g., a manager possesses some private information) and the cost of ameliorating the problem (e.g., costs associated with disclosure). Traditionally these forces are modelled independently. In this paper, we use a simple model to motivate empirical predictions in a setting where these forces are jointly determined––where greater adverse selection entails greater costs of disclosure. We show that joint determination of these forces generates a pronounced non-linearity in the probability of voluntary disclosure. We find that this non-linearity is empirically descriptive of multiple measures of voluntary disclosure in two distinct empirical settings that are commonly thought to feature both private information and proprietary costs: capital investments and sales to major customers.

Suggested Citation

  • Jung Min Kim & Daniel J. Taylor & Robert E. Verrecchia, 2021. "Voluntary disclosure when private information and disclosure costs are jointly determined," Review of Accounting Studies, Springer, vol. 26(3), pages 971-1001, September.
    • Handle: RePEc:spr:reaccs:v:26:y:2021:i:3:d:10.1007_s11142-021-09601-z
    DOI: 10.1007/s11142-021-09601-z
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    References listed on IDEAS

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    3. Wong, T.J. & Yu, Gwen & Zhang, Shubo & Zhang, Tianyu, 2024. "Calling for transparency: Evidence from a field experiment," Journal of Accounting and Economics, Elsevier, vol. 77(1).

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    More about this item

    Keywords

    Voluntary disclosure; Adverse selection; Private information; Disclosure costs; Proprietary costs; Capital investment; Major customers;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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