Voluntary versus mandatory disclosure

Jeremy Bertomeu (), Igor Vaysman and Wenjie Xue
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Jeremy Bertomeu: Washington University
Igor Vaysman: Baruch College
Wenjie Xue: National University of Singapore

Review of Accounting Studies, 2021, vol. 26, issue 2, No 7, 658-692

Abstract: Abstract We develop a theory of asymmetries between voluntary and mandatory disclosure. Efficiently designed mandatory disclosure policies are substitutes for excessive voluntary disclosures. The efficient policy takes the form of a lower threshold below which firms must disclose bad news and an upper threshold above which firms voluntarily disclose good news. Hence mandatory disclosures are asymmetric and feature conservative reporting of bad news. The threshold to recognize bad news increases when information is more precise. We also characterize interactions between disclosures and real decisions in environments where information has social value: investment decisions, optimal liquidations, and adverse selection in a lemons market.

Keywords: Disclosure regulations; Securities laws; Standards; Conservatism; Mechanism design (search for similar items in EconPapers)
JEL-codes: D82 G38 K22 M41 M48 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11142-020-09579-0

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