Voluntary versus Mandatory Disclosure

50 Pages Posted: 21 Nov 2016 Last revised: 24 Apr 2019

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

University of California, San Diego (UCSD) - Rady School of Management

Igor Vaysman

CUNY Baruch College, Zicklin School of Business

Wenjie Xue

National University of Singapore

Date Written: April 22, 2019

Abstract

We develop a theory of asymmetries between voluntary and mandatory disclosure. Efficiently designed mandatory disclosure policies are substitutes for excessive voluntary disclosures. The efficient policy takes the form of a lower threshold below which firms must disclose bad news, and an upper threshold above which firms voluntarily disclose good news. Hence, mandatory disclosures are asymmetric and feature conservative reporting of bad news. The threshold to recognize bad news increases when information is more precise. We also characterize interactions of disclosures and real decisions in environments where information has social value, e.g., investment, optimal liquidations, and adverse selection in a lemons' market.

Keywords: Disclosure regulations; securities laws; standards; conservatism; mechanism design

JEL Classification: M41; G18; K22; D82

Suggested Citation

Bertomeu, Jeremy and Vaysman, Igor and Xue, Wenjie, Voluntary versus Mandatory Disclosure (April 22, 2019). Available at SSRN: https://ssrn.com/abstract=2872412 or http://dx.doi.org/10.2139/ssrn.2872412

Jeremy Bertomeu

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Igor Vaysman

CUNY Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3207 (Phone)

Wenjie Xue (Contact Author)

National University of Singapore ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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