Incentives for voluntary disclosure

Joshua Ronen, Varda Yaari

Research output: Contribution to journalArticlepeer-review

29 Scopus citations


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 languageEnglish
Pages (from-to)349-390
Number of pages42
JournalJournal of Financial Markets
Issue number3
StatePublished - 1 Jun 2002


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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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