Incentives for voluntary disclosure

Joshua Ronen; Varda Yaari

doi:10.1016/S1386-4181(01)00034-9

Incentives for voluntary disclosure

Joshua Ronen, Varda Yaari

Department of Business Administration

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

32 Scopus citations

Abstract

Rule 10b-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 10b-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)	349-390
Number of pages	42
Journal	Journal of Financial Markets
Volume	5
Issue number	3
DOIs	https://doi.org/10.1016/S1386-4181(01)00034-9
State	Published - 1 Jun 2002

Keywords

Disclosure
Incentives
Noisy rational expectations equilibrium
Principal-agent contracts
Rule 10b-5

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/S1386-4181(01)00034-9

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abstract = "Rule 10b-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 10b-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 10b-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 10b-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.

KW - Disclosure

KW - Incentives

KW - Noisy rational expectations equilibrium

KW - Principal-agent contracts

KW - Rule 10b-5

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Incentives for voluntary disclosure

Abstract

Keywords

ASJC Scopus subject areas

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