ABSTRACT This paper develops incentive schemes which motivate a manager to release private information that he has concerning the probabilities of occurrence of the various output levels of his firm. It is shown that, in the context of a pure‐exchange economy, a complete prohibition on the manager's trading in his firm's stock is sufficient to motivate him to truthfully release his private information. When the setting is extended to that of a production‐exchange economy, the manager must also be allowed to choose the production plan that he most prefers in order for him to be motivated to release his information truthfully. In fact, no incentive scheme in a general production‐exchange economy can be guaranteed to motivate the manager to release his information truthfully if he is not allowed to choose the production plan freely. However, when more structure is placed on the economy, such an incentive scheme can be developed as described in the latter part of this paper.

ABSTRACT This study provides an analysis of the effects on individual welfare of information revelation in a production‐exchange economy. It is shown that the total effect of information revelation on an agent's utility level may be decomposed into three elements: a price effect, a shareholding effect, and a production effect. Through this decomposition, it is demonstrated that, although a Pareto improvement need not result from information revelation, there are perspectives from which the release can be considered beneficial.

An important element of a firm's disclosure strategy is the timing of its mandatory public announcements. In this article, two aspects of disclosure timing are examined. The first is the intraday timing of earnings announcements. It is demonstrated here that, under reasonable conditions, market prices reflect better the valuation implications of an earnings announcement when it is made during trading hours rather than after the market has closed. This implies that managers should prefer to release earnings with positive (negative) implications for firm value during (after) trading hours. The second issue examined is the sequencing of multiple corporate disclosures. It is shown that if the announcements have positive (negative) implications for firm value, managers should prefer to make them separately (simultaneously), as market prices better reflect the valuation implications of multiple announcements when they are made at different times.

ABSTRACT This paper analyzes a manager's optimal expectations management strategy in a setting in which the manager provides forecast guidance to an analyst both privately and publicly. Conventional wisdom suggests that managers use private communications with analysts and public earnings forecasts interchangeably to guide analysts' earnings forecasts downward toward lower earnings targets. Our analysis shows that in markets with rational investors, private and public guidance play very different roles in managing expectations, and that managers benefit from downward guidance only in their private communication with analysts. In their public forecasts, they benefit from introducing an upward bias. We explore how the effectiveness of the private and public channels in communicating information to analysts affects managers' incentive to engage in expectations management, and provide a number of empirical predictions. Among other results, we show how reducing private communication between managers and analysts (through means such as Regulation Fair Disclosure) can increase price efficiency, weaken managers' motivation to engage in private, as well as public, expectations management, and increase managers' motivation to provide public disclosures.

This paper examines how public disclosure affects private inforamtion acquisition activity in a market economy. We analyze a setting where traders with short-term investment horizons are allowed to trade on their private information prior to a public disclosure. We demonstrate in this setting that public disclosure stimulates investment in private information acquisition. This result is shown to have implications for the magnitude of the pre-announcement and announcement price reactions to the disclosure.

The prevailing belief in the marketplace holds that the choices of auditor and investment banker affect the price of an initial public offering. This belief reflects the idea that the auditor and investment banker quality provides information about the firm's true value. This paper presents a model giving this belief theoretical support. Under plausible conditions, it is shown that an entrepreneur with favorable information about his firm's value chooses a higher-quality auditor and investment banker than an entrepreneur with less favorable information. As a result, firm value is an increasing function of auditor and investment banker quality.

Brett Trueman, Sheridan Titman, An Explanation for Accounting Income Smoothing, Journal of Accounting Research, Vol. 26, Studies on Management's Ability and Incentives to Affect the Timing and Magnitude of Accounting Accruals (1988), pp. 127-139