Soft Information and the Stewardship Value of Accounting Disclosure

39 Pages Posted: 29 Jan 2009

See all articles by Mirko Stanislav Heinle

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Christian Hofmann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

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

Heinle, Mirko Stanislav and Hofmann, Christian, Soft Information and the Stewardship Value of Accounting Disclosure (January 28, 2009). Available at SSRN: https://ssrn.com/abstract=1334327 or http://dx.doi.org/10.2139/ssrn.1334327

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christian Hofmann (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

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