Voluntary Disclosures, Corporate Control, and Investment

Journal of Accounting Research, Forthcoming

Posted: 27 Jan 2012

See all articles by Praveen Kumar

Praveen Kumar

University of Houston - Department of Finance

Nisan Langberg

University of Houston - C.T. Bauer College of Business; Tel Aviv University - Coller School of Management

Shiva Sivaramakrishnan

Rice University

Date Written: January 25, 2012

Abstract

We examine the valuation and capital allocation roles of voluntary disclosure when managers have private information regarding the firm's investment opportunities, but an efficient market for corporate control influences their investment decisions. For managers with long-term stakes in the firm, the equilibrium disclosure region is two-tailed: only extreme good news and extreme bad news is disclosed in equilibrium. Moreover, the market's stock price and investment responses to bad news disclosures are stronger than the responses to good news disclosures, which is consistent with the empirical evidence. We also find that myopic managers are more likely to withhold bad news in good economic times when markets can independently assess expected investment returns.

Keywords: Voluntary Disclosure, Corporate Investment, Corporate Control

JEL Classification: G14, G31, M41

Suggested Citation

Kumar, Praveen and Langberg, Nisan and Sivaramakrishnan, Shiva, Voluntary Disclosures, Corporate Control, and Investment (January 25, 2012). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1992117

Praveen Kumar

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

Nisan Langberg (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Shiva Sivaramakrishnan

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

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