Forcing Firms to Talk: Financial Disclosure Regulation and Externalities

Forcing Firms to Talk: Financial Disclosure Regulation and Externalities We analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation. In our model disclosure is costly, it has private and social value, and its precision is endogenous. We show that (i) a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy; (ii) the Nash equilibrium of a voluntary disclosure game is often socially inefficient; (iii) regulation that requires a minimal precision level sometimes but not always improves welfare; (iii) the same is true for subsidies that change the perceived cost of disclosures; and (iv) neither regulation method dominates the other. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Forcing Firms to Talk: Financial Disclosure Regulation and Externalities

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Publisher
Oxford University Press
Copyright
© 2000 The Society for Financial Studies
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/13.3.479
Publisher site
See Article on Publisher Site

Abstract

We analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation. In our model disclosure is costly, it has private and social value, and its precision is endogenous. We show that (i) a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy; (ii) the Nash equilibrium of a voluntary disclosure game is often socially inefficient; (iii) regulation that requires a minimal precision level sometimes but not always improves welfare; (iii) the same is true for subsidies that change the perceived cost of disclosures; and (iv) neither regulation method dominates the other.

Journal

The Review of Financial StudiesOxford University Press

Published: Jul 15, 2000

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