Information Disclosure and Corporate Governance

Benjamin Hermalin and Michael Weisbach

No 76, SIFR Research Report Series from Institute for Financial Research

Abstract: In public-policy discussions about corporate disclosure, more is typically judged better than less. In particular, better disclosure is seen as a way to reduce the agency problems that plague firms. We show that this view is incomplete. In particular, our theoretical analysis shows that increased disclosure is a two-edged sword: More information permits principals to make better decisions; but it can, itself, generate additional agency problems and other costs for shareholders, including increased executive compensation. Consequently, there can exist a point beyond which additional disclosure decreases firm value. We further show that larger firms will tend to adopt stricter disclosure rules than smaller firms, ceteris paribus. Firms with better disclosure will tend, all else equal, to employ more able management. We show that governance reforms that have imposed greater disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.

Keywords: Corporate governance; Corporate disclosure (search for similar items in EconPapers)
JEL-codes: D82 D83 G30 L20 M42 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010-09-21, Revised 2011-06-01
New Economics Papers: this item is included in nep-bec and nep-cta
Note: Please find updated version on http://fisher.osu.edu/fin/faculty/weisbach/wpapers.html
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming as Hermalin, Benjamin E. and Michael S. Weisbach, 'Information Disclosure and Corporate Governance' in Journal of Finance.

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Related works:
Journal Article: Information Disclosure and Corporate Governance (2012)
Working Paper: Information Disclosure and Corporate Governance (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0076

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