Discretionary Aggregation

Posted: 23 Jul 2014 Last revised: 9 Mar 2016

See all articles by Michael Ebert

Michael Ebert

University of Paderborn

Dirk Simons

University of Mannheim - Accounting and Taxation

Jack Douglas Stecher

University of Alberta - Department of Accounting, Operations & Information Systems

Date Written: February 24, 2016

Abstract

We study a disclosure decision for a firm's manager with many sources of private information. The presence of multiple numerical signals provides the manager with an opportunity to hide information via aggregation, presenting net amounts in order to show information in its best light. We show that this ability to aggregate fundamentally changes the nature of voluntary disclosure, due to the market's inability to verify that a report is free of strategic aggregation. We find that, in equilibrium, the manager fully discloses if and only if the manager's private information makes the firm look sufficiently weak. By separating bad news from good news, a disaggregate report informs the market of as much offsetting news as possible, revealing how close the news is to a neutral benchmark. The result is therefore pooling at the top and separation at the bottom, the opposite of what transpires with a single news source.

Keywords: Aggregation, Disclosure, Persuasion, Reporting Discretion, Segment Reporting, Sender-Receiver Games

JEL Classification: M41, D82, D83

Suggested Citation

Ebert, Michael and Simons, Dirk and Stecher, Jack Douglas, Discretionary Aggregation (February 24, 2016). Accounting Review, Forthcoming http://dx.doi.org/10.2308/accr-51434, Available at SSRN: https://ssrn.com/abstract=2469212 or http://dx.doi.org/10.2139/ssrn.2469212

Michael Ebert (Contact Author)

University of Paderborn ( email )

Warburger Str. 100
Paderborn, D-33098
Germany

Dirk Simons

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Jack Douglas Stecher

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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