The Effects of Accounting Report Quality on the Bias in and Likelihood of Management Disclosures

50 Pages Posted: 6 May 2009

See all articles by Young K. Kwon

Young K. Kwon

University of Illinois - College of Business

Paul Newman

University of Texas at Austin - Department of Accounting

Yoonseok Zang

Singapore Management University - School of Accountancy

Date Written: Aprl 28, 2009

Abstract

The central focus of this paper is on how the quality of anticipated mandatory accounting reports affects the bias in and likelihood of voluntary management disclosures. Our model integrates two paradigms used to analyze management disclosures, those in which managers choose to disclose or not when disclosures must be truthful, and those in which managers choose the extent of bias when disclosures always occur. Thus, we incorporate both proprietary (firm-wide) costs of disclosures and personal costs of biasing. In our model, the manager endogenously determines both whether to disclose and, if disclosure occurs, how much to bias the disclosure. We find that increases in the quality of mandatory accounting reports decrease the bias in management disclosures because investors rely relatively less on the disclosures in determining the firm’s value. Further, as the quality of accounting reports increases, the probability of management disclosures also increases because the cost to the manager of biasing the disclosures decreases. Finally, we show that the manager may prefer low to high quality mandatory accounting reports when the proprietary costs of disclosures are large or the manager’s stock-based incentives are large relative to the personal cost of biasing.

Keywords: voluntary disclosure, mandatory disclosure, bias, accounting quality

JEL Classification: M41, M45

Suggested Citation

Kwon, Young K. and Newman, Donald Paul and Zang, Yoonseok, The Effects of Accounting Report Quality on the Bias in and Likelihood of Management Disclosures (Aprl 28, 2009). Available at SSRN: https://ssrn.com/abstract=1399863 or http://dx.doi.org/10.2139/ssrn.1399863

Young K. Kwon

University of Illinois - College of Business ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-4528 (Phone)

Donald Paul Newman (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
378
rank
76,198
Abstract Views
1,783
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information