Governance Mechanisms and Corporate Disclosure

37 Pages Posted: 14 Mar 2006

See all articles by Robert B. H. Hauswald

Robert B. H. Hauswald

American University - Department of Finance and Real Estate

Robert Marquez

University of California, Davis

Date Written: February 2006


Corporate disclosure policies, by promoting greater transparency, foster external scrutiny and thus activity in the market for corporate control. A firm's relative reliance on takeovers versus internal board monitoring is therefore itself an aspect of its governance arrangements. However, agency problems between the board and shareholders may lead to inefficient levels of both monitoring and disclosure. We show that technological progress can mitigate such inefficiencies. Improvements in dissemination technology lead to more disclosure and improved external governance, allowing the board to monitor less. By contrast, advances in information processing that increase the returns to information acquisition lead to less disclosure and more internal governance. We also find that competition in the takeover market allows firms to reduce disclosure because there are more players potentially providing external governance. From a social welfare perspective, we find that firms disclose too little, thus providing a rationale for regulation that enforces minimal disclosure standards.

Keywords: Corporate Governance, Disclosure, Board Monitoring, Market for Corporate Control

JEL Classification: G21, L51, O31

Suggested Citation

Hauswald, Robert B.H. and Marquez, Robert S., Governance Mechanisms and Corporate Disclosure (February 2006). AFA 2007 Chicago Meetings Paper, Available at SSRN: or

Robert B.H. Hauswald (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1996 (Phone)
202-885-1946 (Fax)

Robert S. Marquez

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics