Public Disclosure of Forward Contracts and Revelation of Proprietary Information

John S. Hughes (), Jennifer L. Kao () and Michael Williams ()

Review of Accounting Studies, 2002, vol. 7, issue 4, No 5, 459-478

Abstract: Abstract Financial executives of firms engaged in forward contracting have raised concerns that mandated disclosure of those contracts would reveal proprietary information to rival firms. This paper considers the basis for those concerns in the framework of a duopoly in which one privately informed producer enters the forward market prior to production. In choosing its forward position, the firm considers the effects of that position on the forward price and second stage product market competition with its rival. Two regimes are considered: mandated disclosure and no disclosure. Under the former, the contracting firm faces a tension between exploiting its information advantage in the forward market and attempting to influence the production decision of its rival. On average, in equilibrium, the contracting firm gains a first-mover advantage, but at the cost of revealing its private information to its rival and extracting less expected gains from uninformed forward market participants. In contrast, with no disclosure, the contracting firm cannot influence rival firm beliefs, but extracts more expected gains from its private information in both the forward and product markets. On balance, the contracting firm prefers no disclosure. Moreover, parameterizations exist such that the rival also prefers that regime. These findings explain the opposition of respondents to draft proposals of Statement of Financial Standards No. 133.

Keywords: disclosure; forward contracts; first-mover advantage; private information (search for similar items in EconPapers)
Date: 2002
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1023/A:1020715729207 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:7:y:2002:i:4:d:10.1023_a:1020715729207

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1023/A:1020715729207

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().