The Economics of Firms' Public Disclosure: Theory and Evidence
65 Pages Posted: 18 Sep 2017 Last revised: 17 Jul 2019
Date Written: July 2019
We develop and test an economic framework specific to firms’ public disclosure decisions. Building on the theory of complements and public goods, our analytical analysis suggests that the number of firms’ transacting stakeholders is a major determinant of disclosure demand and, hence, firms’ public disclosure decision. Using comprehensive data on stakeholders’ revealed preferences for firms’ public disclosure, our empirical analysis supports the predicted importance of the number of transacting stakeholders for firms’ public disclosure across several settings and disclosure margins (e.g., extensive and intensive margin, disclosure quantity and quality). Our framework is particularly suited for guiding the growing literature investigating non-standard public disclosure settings such as private firms and the influence of stakeholders other than shareholders.
Keywords: financial statements, public disclosure, disclosure demand, private firms, stakeholders
JEL Classification: M41
Suggested Citation: Suggested Citation