Disclosure Decisions by Firms and the Competition for Price Efficiency

Michael Jay Fishman · Kathleen M. Hagerty

434 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

ABSTRACT This paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm. Disclosure decisions are studied. It is shown that firms may expend more resources on disclosure than is socially optimal. This is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure.

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References

1985Continuous Auctions and Insider Trading 1987A Simple Model of Capital Market Equilibrium with Incomplete Information 1983Discretionary disclosure 1988A Theory of Intraday Patterns: Volume and Price Variability 1978The Private and Social Value of Information and the Reward to Inventive Activity 1985Optimal Release of Information By Firms 1982Corporate Financial Structure and Managerial Incentives 1982The Economics of Information and Uncertainty

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2010Product Market Competition, Insider Trading, and Stock Market Efficiency 1992Insider Trading and the Efficiency of Stock Prices 2001Corporate Social Responsibility and Financial Disclosures: An Alternative Explanation for Increased Disclosure 2010Different approaches to corporate reporting regulation: How jurisdictions differ and why 2010Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence 2002Corporate Disclosure Policy and the Informativeness of Stock Prices

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