Voluntary Disclosure of Accounting Information for Product Warranty Liability
Posted: 9 Nov 1998
Date Written: August 1998
This paper investigates factors that are associated with management decisions to disclose warranty information voluntarily. First, I find that firms with lower warranty liabilities are more likely to disclose the information. Second, firms whose warranty provisions are lower than other firms with similar warranty liabilities or lower than what their own warranty liabilities would imply choose to disclose the provision amount. Third, firms which disclose warranty liabilities voluntarily are characterized by less volatile time-series of warranty liabilities. The evidence supports the notion that the benefits from signaling good news exceed potential proprietary costs from adverse reactions of consumers or from competitors' responses.
JEL Classification: M41, M45
Suggested Citation: Suggested Citation