Voluntary Disclosure in Light of Control Concerns

Abstract

The centrality of private information in the design of accounting institutions has been explored via agency models that address control concerns as well as disclosure models that amplify valuation issues. Somewhat surprisingly, the joint analysis of control and valuation considerations, and their implication for firms’ voluntary disclosure practices have not received much attention. Our paper addresses this shortcoming. With embedded control and valuation concerns, the nature of the firm’s disclosure in the stock market is altered profoundly – disclosure is two-tailed or intermediate, but not single-tailed as is the norm in the disclosure literature bereft of control problems. The severity of the control problem is also altered in that disclosure changes managerial incentives to acquire and exploit private information.