The Joint Effects of Materiality Thresholds and Voluntary Disclosure Incentives on Firms' Disclosure Decisions

58 Pages Posted: 11 Dec 2007 Last revised: 9 Oct 2009

See all articles by Shane Heitzman

Shane Heitzman

University of Southern California - Marshall School of Business

Charles E. Wasley

Simon School, University of Rochester

Jerold L. Zimmerman

University of Rochester - Simon Business School

Date Written: October 6, 2009

Abstract

Under GAAP, SEC and exchange-listing rules, managers must disclose material information. We construct a disclosure specification incorporating managers’ obligation to disclose material information and voluntary disclosure incentives. We demonstrate that tests of the incentives to voluntarily disclose information must recognize such information is often disclosed because of an underlying duty to disclose. Our empirical tests isolating the impact of materiality on firms’ disclosures have greater explanatory power over empirical tests that do not. Voluntary disclosure incentives better explain disclosure when the information is less likely to be material. Tests of voluntary disclosure theories ignoring materiality likely lead to incorrect inferences.

Keywords: Disclosure, Materiality

JEL Classification: M41, M45, M49

Suggested Citation

Heitzman, Shane and Wasley, Charles E. and Zimmerman, Jerold L., The Joint Effects of Materiality Thresholds and Voluntary Disclosure Incentives on Firms' Disclosure Decisions (October 6, 2009). Available at SSRN: https://ssrn.com/abstract=1069382 or http://dx.doi.org/10.2139/ssrn.1069382

Shane Heitzman (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Charles E. Wasley

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)

Jerold L. Zimmerman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3397 (Phone)
585-442-6323 (Fax)

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