Public Information Precision and Coordination Failure: An Experiment

67 Pages Posted: 26 Jun 2015 Last revised: 29 Apr 2016

See all articles by Sanjay Banerjee

Sanjay Banerjee

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

Michael S. Maier

University of Alberta - Alberta School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 25, 2016

Abstract

More precise public disclosure reduces uncertainty about economic fundamentals, but it can increase uncertainty about other agents' actions, leading to coordination failure. We conducted a laboratory experiment to study the effects of public information precision and strategic complementarity on coordination failure. Information precision is operationalized in terms of ``granularity'' (level of detail). We found that: (i) granular public disclosure, which is disaggregated and precise, increases the likelihood of coordination failure and decreases coordination efficiency when public information is pessimistic about future economic prospects; (ii) the deleterious effect of granular disclosure is stronger when strategic complementarity is high; and (iii) higher levels of strategic complementarity decrease coordination efficiency. Overall, the observed likelihood of coordination failure is higher and coordination efficiency is lower than predicted by theory. Our findings have implications for the Federal Reserve's decision to publicly disclose detailed stress test results for distressed banks, and the debate on whether the PCAOB should publicly release reports on firm-specific quality-control deficiencies of audit firms.

Keywords: coordination failure, transparency, information granularity, global game, heterogenous information, strategic uncertainty, experiment

JEL Classification: C92, D82, D84, E58

Suggested Citation

Banerjee, Sanjay and Maier, Michael, Public Information Precision and Coordination Failure: An Experiment (April 25, 2016). Journal of Accounting Research, Forthcoming; University of Alberta School of Business Research Paper No. 2015-306. Available at SSRN: https://ssrn.com/abstract=2622707 or http://dx.doi.org/10.2139/ssrn.2622707

Sanjay Banerjee (Contact Author)

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

Edmonton, Alberta T6G 2R6
Canada

Michael Maier

University of Alberta - Alberta School of Business ( email )

2-30C Business Building
Edmonton, Alberta T6G 2R6
Canada
7802481275 (Phone)

HOME PAGE: http://https://business.ualberta.ca/about/contact-us/school-directory/michael-maier

Register to save articles to
your library

Register

Paper statistics

Downloads
116
Abstract Views
628
rank
236,059
PlumX Metrics