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Journal of Finance Vol. 67 No. 1 2012

Information Disclosure and Corporate Governance

Benjamin E. Hermalin1,2,3,4,5,6; Michael S. Weisbach1,2,3,4,5,6

1 California Health and Human Services Agency · 2 University of California System · 3 University of Illinois Chicago · 4 University of Chicago · 5 Institute for Financial Research · 6 The Ohio State University

open access

Abstract

Public policy discussions typically favor greater corporate disclosure as a way to reduce firms' agency problems. This argument is incomplete because it overlooks that better disclosure regimes can also aggravate agency problems and related costs, including executive compensation. Consequently, a point can exist beyond which additional disclosure decreases firm value. Holding all else equal, we further show that larger firms will adopt stricter disclosure rules than smaller firms and firms with better disclosure will employ more able management. We show that mandated increases in disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.

DOI
10.1111/j.1540-6261.2011.01710.x
Volume
67
Issue
1
Pages
195-233
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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