Incentives for Voluntary Disclosure

Joshua Ronen; Varda L. Yaari

doi:10.1016/S1386-4181(01)00016-7

Incentives for Voluntary Disclosure

Joshua Ronen, Varda L. Yaari

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal-agent contracts between owners - contract designers - and privately informed managers, owners are the ultimate firms' voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.

Original language	English
Pages (from-to)	309-357
Number of pages	49
Journal	Journal of Financial Markets
Volume	4
Issue number	4
DOIs	https://doi.org/10.1016/S1386-4181(01)00016-7
State	Published - 1 Oct 2001

Keywords

D82
Disclosure
G10
G30
Incentives
K22
Noisy rational expectations equilibrium
Principal-agent contracts
Rule l0b-5

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/S1386-4181(01)00016-7

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abstract = "Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal-agent contracts between owners - contract designers - and privately informed managers, owners are the ultimate firms' voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.",

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AB - Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal-agent contracts between owners - contract designers - and privately informed managers, owners are the ultimate firms' voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.

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KW - G30

KW - Incentives

KW - K22

KW - Noisy rational expectations equilibrium

KW - Principal-agent contracts

KW - Rule l0b-5

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Incentives for Voluntary Disclosure

Abstract

Keywords

ASJC Scopus subject areas

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