Soft Information and the Stewardship Value of Accounting Disclosure
39 Pages Posted: 29 Jan 2009
Date Written: January 28, 2009
Abstract
In the light of IASB's statement to drop stewardship as a separate objective of financial accounting and the ongoing debate about increasing the disclosure of soft information, we investigate the economic consequences of publicly reported soft information from a stewardship perspective. In a LEN model we include market price as a performance measure and investigate whether the principal benefits from disclosing additional information. While the principal can only use contractible performance measures in the contract with the agent, capital market participants can only use disclosed information when pricing firm value. We find that the disclosure of information can decrease the principal's expected net profit. This result follows from either a noisier or a less congruent market price as a consequence of disclosing additional information. Thus, we present a rationale for partial disclosure in the absence of proprietary costs or the uncertainty of information endowment.
Keywords: soft information, disclosure, incentive contracts
JEL Classification: D82, G14, M41, M44, M45
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Giving Content to Investor Sentiment: The Role of Media in the Stock Market
-
More than Words: Quantifying Language to Measure Firms' Fundamentals
By Paul C. Tetlock, Maytal Saar-tsechansky, ...
-
Is All that Talk Just Noise? The Information Content of Internet Stock Message Boards
By Murray Z. Frank and Werner Antweiler
-
Media Coverage and the Cross-Section of Stock Returns
By Lily H. Fang and Joel Peress
-
When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks
By Tim Loughran and Bill Mcdonald
-
Do Stock Market Investors Understand the Risk Sentiment of Corporate Annual Reports?
By Feng Li
-
Yahoo! For Amazon: Sentiment Parsing from Small Talk on the Web
By Sanjiv Ranjan Das and Mike Y. Chen
-
By Zhi Da, Joseph Engelberg, ...
-
By Joshua D. Coval and Tyler Shumway
-
The Impact of Credibility on the Pricing of Managerial Textual Content
By Elizabeth Demers and Clara Vega