Mandatory Disclosure and Asymmetry in Financial Reporting

38 Pages Posted: 17 May 2014 Last revised: 7 Jan 2015

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

Washington University in St. Louis - John M. Olin Business School

Robert P. Magee

Northwestern University

Date Written: May 15, 2014

Abstract

This article examines the demand for disclosure rules by informed managers interested in increasing the market price of their firms. Within a model of political influence, a majority of managers chooses disclosure rules with which all firms must comply. In equilibrium, disclosure rules are asymmetric with greater levels of disclosure over adverse events. This asymmetry is positively associated with the informativeness of the measurement and increasing in the level of verifiability and ex-ante uncertainty of the information. The theory also offers implications about the relationship between mandatory and voluntary disclosure, when both channels are endogenous.

Keywords: disclosure, law, accounting, valuation, regulation

JEL Classification: D2, D4, D7, G18, K2, M4

Suggested Citation

Bertomeu, Jeremy and Magee, Robert P., Mandatory Disclosure and Asymmetry in Financial Reporting (May 15, 2014). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2437588

Jeremy Bertomeu (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Robert P. Magee

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-2676 (Phone)
847-467-1202 (Fax)

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