Incentives for Voluntary Disclosure

76 Pages Posted: 8 Oct 2008

See all articles by Joshua Ronen

Joshua Ronen

New York University (NYU) - Department of Accounting

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Date Written: April 2001


Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firmsfor misrepresentation or omission. Since firms are principal-agent contracts between owners contract designers - and privately informed managers, owners are the ultimate firms' voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntarydisclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.

Keywords: Rule l0b-5, Disclosure, Noisy rational expectations equilibrium, Principal-agent contracts

Suggested Citation

Ronen, Joshua, Incentives for Voluntary Disclosure (April 2001). NYU Working Paper No. 2451/27582, Available at SSRN:

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