Many investments are noted for their "beauty contest" features in that decision makers desire conformity with others׳ choices due to inherent complementarities. This paper examines the incentives of firms to take preemptive action and publicly disclose their investments in such beauty contests. In this case, it is the beauty contest desire for coordination that incentivizes a firm to disclose because doing so allows it to convey information that establishes norms and thereby influence subsequent actions of others. Disclosure recipients too benefit from this arrangement because they access additional information on which to base their decisions.

A prevailing view in the disclosure literature is that firms who learn favorable market information are reluctant to disclose it, fearing it will attract new rivals. In this paper, we demonstrate that the presence of dual distribution arrangements, wherein consumers can purchase products either from traditional retail firms or directly from suppliers, can notably alter disclosure incentives. As under prevailing views, a retailer disclosing positive news risks entry by competitors. However, entry shifts the incumbent supplier–retailer relationship: the presence of new competitors leads the supplier to treat its retailer more as a strategic partner, translating into lower wholesale prices. This, in turn, can lead the retailer to willingly share favorable news, since such disclosure invites entry precisely when the retailer stands to benefit most from price concessions. Our results suggest that as dual distribution continues to increase in prominence, firms may be more willing to voluntarily disclose sensitive financial information particularly that which points to high demand for its products.

This paper considers the role of analyst following in coordinating mutually beneficial disclosure among competing firms. Though firms may benefit from industry-wide transparency, the urge to keep a competitive edge by withholding disclosures can be compelling. In such a case, the desire to attract analyst following can make a policy of joint disclosure viable. Knowing that keeping silent can deter analysts, no firm has incentives to unilaterally withhold disclosures. Further, coordinated disclosures can benefit firms and consumers alike by yielding circumstance-specific product offerings.

When establishing disclosure policies, firms carefully weigh the ramifications for various constituents. This paper stresses such multi-faceted judgments by addressing the joint effect of information disclosure on competitors and third-party information providers. While the desire to keep competitors out-of-the-loop may point to a firm keeping proprietary information away from the public eye, the presence of other information providers (e.g., analysts and media outlets) can play a key role. In particular, a firm may benefit from public disclosure because it serves to guide the information gathering and dissemination of third parties. Though the direct effect of disclosure is to unduly arm competitors with information, the reverberations that come in the form of directing the herd of information providers may make it worthwhile.

Besides the commonly cited reasons for the use of stock options, including motivating employees, conserving cash, exploiting favorable accounting and tax treatment, and retaining managers, we demonstrate a complementary benefit of option-based compensation: options also prove efficient in matching managerial pay to ability. Options are useful because they force a manager to put his pay on the line. If a manager wants to overstate his worth to the firm, he must naturally also overstate the firm's worth with him at the helm. As a result, the firm offers a generous package of stock options in lieu of cash for assertions of high ability. Since both the likelihood of option exercise and firm value in the event of exercise are tied to managerial ability, only a gifted manager takes such a gamble.

Fischer and Verrecchia (J. Account. Econom. (2004), forthcoming) studies a model of imperfect competition in which firms’ disclosures are affected by biased information processing. They find that optimism can add punch to a firm's actions. When facing an optimist, a rival is forced to soften its competitive posture, thereby rendering such biases viable. Although the setting provides a cogent explanation for disclosure bias, its reliance on imperfect information processing introduces some questions. One concern is the ease with which polar results can be obtained when the rules-of-the-game are sufficiently relaxed. The discussion provides examples illustrating this and related issues.