Voluntary disclosure when private information and disclosure costs are jointly determined

Jung Min Kim, Daniel J. Taylor () and Robert E. Verrecchia
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Jung Min Kim: University of Pennsylvania
Daniel J. Taylor: University of Pennsylvania
Robert E. Verrecchia: University of Pennsylvania

Review of Accounting Studies, 2021, vol. 26, issue 3, No 4, 1001 pages

Abstract: Abstract Classical models of voluntary disclosure feature two economic forces: the existence of an adverse selection problem (e.g., a manager possesses some private information) and the cost of ameliorating the problem (e.g., costs associated with disclosure). Traditionally these forces are modelled independently. In this paper, we use a simple model to motivate empirical predictions in a setting where these forces are jointly determined––where greater adverse selection entails greater costs of disclosure. We show that joint determination of these forces generates a pronounced non-linearity in the probability of voluntary disclosure. We find that this non-linearity is empirically descriptive of multiple measures of voluntary disclosure in two distinct empirical settings that are commonly thought to feature both private information and proprietary costs: capital investments and sales to major customers.

Keywords: Voluntary disclosure; Adverse selection; Private information; Disclosure costs; Proprietary costs; Capital investment; Major customers (search for similar items in EconPapers)
JEL-codes: D82 M40 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11142-021-09601-z

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