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Incentives for Voluntary Disclosure

76 Pages Posted: 2 Apr 2001  

Joshua Ronen

New York University (NYU) - Department of Accounting

Varda Lewinstein Yaari

Multiple version iconThere are 3 versions of this paper

Date Written: 2001

Abstract

Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for 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 voluntary disclosure 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, incentives

JEL Classification: G10, G30, K22, D82

Suggested Citation

Ronen, Joshua and Yaari, Varda Lewinstein, Incentives for Voluntary Disclosure (2001). AFA 2001 New Orleans Meetings; NYU Ctr for Law and Business Research Paper No. 01-005. Available at SSRN: https://ssrn.com/abstract=155328 or http://dx.doi.org/10.2139/ssrn.155328

Joshua Ronen (Contact Author)

New York University (NYU) - Department of Accounting ( email )

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HOME PAGE: http://www.stern.nyu.edu/~jronen/

No contact information is available for Varda Lewinstein Yaari

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