Relative Performance Evaluation and Corporate Discretionary Disclosure

30 Pages Posted: 19 Aug 2012

Date Written: August 18, 2012


According to the unraveling result, an informed party ends up revealing all the private information to uninformed parties without being able to exploit information advantage despite its discretion to disclose the information (Grossman and Hart, 1980; Grossman, 1981; Milgrom, 1981; Milgrom and Roberts, 1986). In contrast, this paper shows that strategic delegation of disclosure decision coupled with relative performance evaluation (RPE) enables a firm to withhold private information by serving as a credible commitment to withhold information. The use of RPE naturally makes a manager focus on the difference between his own firm's performance and a peer firm's performance. Then, to maximize the difference, the manager does not want to share market demand information with a rival firm. The selfish but rational withholding of information decreases a firm's profit ex post under low demand when a market needs coordination between two firms' productions. But the consistent ex post withholding of information allows a firm to sustain withholding information in equilibrium and a firm's expected profit improves under the equilibrium.

Keywords: Relative Performance Evaluation, Discretionary Disclosure, Competition

Suggested Citation

Yoon, Dae-Hee, Relative Performance Evaluation and Corporate Discretionary Disclosure (August 18, 2012). AAA 2013 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: or

Dae-Hee Yoon (Contact Author)

Yonsei University ( email )

School of Business
Korea, Republic of (South Korea)

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