Is Silence Golden? Real Effects of Mandatory Disclosure
By Sudarshan Jayaraman, J. Wu. The Review of financial studies, 2018
145 citations recorded by the source corpus.
Mandatory disclosure provides benefits, but it also entails costs. One cost concerns managerial learning: by discouraging informed trading, disclosure could reduce managers’ ability to glean decision-relevant information from prices. Using mandatory segment reporting in the United States, we uncover a reduction in investment-$q$ sensitivity, indicating lower investment efficiency after regulation. Consistent with learning, lower sensitivity is concentrated in firms with more informed trading and lower financing constraints. Constrained firms exhibit no change in investment-$q$ sensitivity, suggesting that they enjoy countervailing benefits via greater financing and stronger governance. Overall, we document a novel link between mandatory disclosure and real effects. Received October 25, 2017; editorial decision June 20, 2018 by Editor Wei Jiang.
Subfields: Accounting
View Paper: https://www.semanticscholar.org/paper/51acae610d81cf2630917dd433252cb387e6e610
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Citations in the corpus
- The effects of financial reporting and disclosure on corporate investment: A review (2019, background): “34 Jensen and Meckling (1976) and Eisdorfer (2008), among others, argue that shareholders and debtholders have conflicting appetites for risk-taking when a firm is close to financial distress, leading to agency issues such as asset substitution.”