Disclosure Decisions by Firms and the Competition for Price Efficiency

Disclosure Decisions by Firms and the Competition for Price Efficiency ABSTRACT This paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm. Disclosure decisions are studied. It is shown that firms may expend more resources on disclosure than is socially optimal. This is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Disclosure Decisions by Firms and the Competition for Price Efficiency

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
1989 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1989.tb04382.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm. Disclosure decisions are studied. It is shown that firms may expend more resources on disclosure than is socially optimal. This is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure.

Journal

The Journal of FinanceWiley

Published: Jul 1, 1989

References

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