Voluntary Disclosure Research: Which Theory Is Relevant?

Abstract

The purpose of this paper is to overview the most popular theories that have been used in prior research to explain voluntary corporate disclosuresand to provide guidance about the choice of a suitable theory or theories for different types of voluntary disclosure research.This paper presents a comprehensive comparison of voluntary disclosuretheories and relateseach of the theories tothe type of information disclosure being examined. Following prior research, we classify disclosures into strategic and forward looking, financial, and non-financial information. Similarities and differences between theories stem from underlying paradigm differences which are related to incentives to disclose and the costs and benefits considered by each theory.The choice of a suitable theory to underpin the research depends on the type of information disclosure being examined and the external parties considered. It is important for researchers to have an understanding of the similarities and differences between the theories and their applicability to different types of voluntary corporate disclosures. In addition to the type of information disclosed, it is also important for the researcher to consider the context of the research, including the information users of interest. While there are several prior studies that have reviewed groups of voluntary disclosure theories, no known prior study provides a comprehensive comparison of the six theories covered in this paper. Further, no known prior study relates the choice of a suitable theory to the type of information disclosed and the information needs of various user groups.

Keywords: Disclosure theory, socio-political, signalling, agency

JEL Classification: M40