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http://ssrn.com/abstract=1737809
 
 

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Discussion of Consequences and Institutional Determinants of Unregulated Corporate Financial Statements: Evidence from Embedded Value Reporting


Luzi Hail


University of Pennsylvania - The Wharton School

January 10, 2011


Abstract:     
Serafeim [2011] examines the determinants and economic consequences of embedded value (EV) reporting, a voluntary disclosure arrangement in the life insurance industry. He finds substantial reductions in bid-ask spreads for EV reporting firms, and links the occurrence of this disclosure practice to the nature of competition in the insurance business. In my discussion, I focus on two aspects of his hypothesis development: (1) does EV reporting give rise to a credible commitment to transparency? (2) What are the country-level determinants of EV reporting? First, on a conceptual level, I highlight the distinction between an ex ante commitment to transparency and ex post voluntary disclosure. To illustrate my point, I examine the change in information asymmetry around various voluntary disclosure choices with varying degrees of commitment. I find a reduction in bid-ask spreads following U.S. cross-listings and the voluntary adoption of IFRS, but not after a switch to a Big Five auditor. These results let me gauge the magnitude of the effects for EV reporting. Second, I discuss the notion of complementarities among the elements of a country’s institutional environment. I then empirically show that institutional forces likely act both ways, i.e., from a single industry to the rest of the economy and vice versa, and that EV reporting is not independent from other voluntary commitment devices in a country. In sum, my findings underscore the importance of (and difficulties in) cleanly identifying the determinants and effects of voluntary disclosure choices.

Number of Pages in PDF File: 28

Keywords: Voluntary Disclosure, Bonding Mechanisms, International Accounting, Regulation, Market Liquidity, Bid-Ask Spreads, Information Asymmetry

JEL Classification: G14, G15, G30, K22, M41, M42

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Date posted: January 11, 2011 ; Last revised: November 20, 2011

Suggested Citation

Hail, Luzi, Discussion of Consequences and Institutional Determinants of Unregulated Corporate Financial Statements: Evidence from Embedded Value Reporting (January 10, 2011). Available at SSRN: http://ssrn.com/abstract=1737809 or http://dx.doi.org/10.2139/ssrn.1737809

Contact Information

Luzi Hail (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)
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