Review of Accounting Studies Vol. 26 No. 3 2021
Voluntary disclosure when private information and disclosure costs are jointly determined
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.
- DOI
- 10.1007/s11142-021-09601-z
- Volume
- 26
- Issue
- 3
- Pages
- 971-1001
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib