The Effect of Market Transparency on Corporate Disclosure: Evidence from the Observability of Bond Prices and Trading

Market prices and trading are important information constructs that reveal information to market participants. I study how the observability of market prices and trading (hereafter, "market transparency") affects firms' disclosure incentives. I exploit the staggered introduction of TRACE, which made bond prices and transactions publicly observable. I find that firms provide more guidance when their bonds' prices/trading become observable, suggesting that investors' access to market information limits managers' incentives to withhold information. This effect is stronger for firms whose revealed prices contain more new information, and it is more pronounced for the disclosure of bad news. I corroborate my results using (i) a controlled experiment, in which prices/trading were revealed for randomly selected bonds, and also (ii) relevant threshold rules. Together, my results suggest that increased market transparency improves investors' access to information not only directly, by revealing the information contained in returns/trading, but also indirectly, by increasing corporate disclosure.

Reporting of Real Option Value Related to ESG: Including Complementary Systems for Disclosure Incentives

This paper aims to consider ways of granting disclosure incentives in order for the Signaling Theory to develop and encompass the Legitimacy Theory. First, the author discusses that ESG strategies for managing stakeholder externalities create real option value that leads to corporate value creation, both as business opportunities as well as appeals to a company’s legitimacy. At the same time as making real option thinking useful for strategic decision-making by management, it is necessary to structure non-financial information disclosure for convincing optionality related to controlling externalities from the viewpoint of investors.Second, at the stage where conditions are not met for companies able to autonomously undertake management with a view to externalities, the author discusses how supplementing incentives for issuing signals regarding differentiation from other companies in the same industry relating to controlling externalities is required in the disclosure of non-financial information in statutory reporting systems. On the other hand, since the materiality of financial reporting is centered on risks and opportunities for business, disclosure regulations are required separately for material social values. Events not originally related to corporate value can create incentive for the fulfillment of accountability of companies by the mediation of “negative intangibles” through reputation.

Do Independent Directors Tell the Truth, the Whole Truth, and Nothing but the Truth When They Resign?

We examine the informativeness and credibility of independent directors’ stated resignation reasons. We posit that having access to private information, directors may resign in anticipation of weak future underperformance to limit damage to their reputation and further have an incentive to mask the reason for the resignation. Results show likelihood of resignation increases with director’s reputation and weak future firm performance. In addition, the evidence is consistent with directors obfuscating the reason for departure by providing benign and unverifiable resignation reasons. Investors seem aware of the disclosure incentives of departing directors and react negatively to such resignations. However, investors, by and large, underreact to the resignation announcement, likely because of the benign reason given for the resignation. Our results suggest that notwithstanding the perception of outside directors’ impartiality and assumed interest alignment with shareholders, independent directors’ personal reputation concerns may conflict with the interests of shareholders to whom they owe fiduciary duties.

Beyond Profits: The Rise of Dual-Purpose Organizations and Its Consequences for Disclosure

ABSTRACT Organizations with a mission that extends “beyond profit” to achieve broader objectives are becoming increasingly common. This paper studies such hybrid entities—firms that value the profits they generate, as well as the utility they provide to customers—and details their implications for industry disclosure practices. The findings demonstrate that disclosure incentives are perturbed not just from being a hybrid entity, but also from competing with such entities. Accounting for both competitive and disclosure effects, the paper then assesses the circumstances under which a hybrid firm is economically viable and derives the ensuing equilibrium industry composition. As such, we show that the presence of firms with objectives beyond profit can be an endogenous characteristic of many industries.

Effects of IFRS, Analysts, and ADR on Voluntary Disclosure of Brazilian Public Companies

ABSTRACT This study examines the effects of the interactions among IFRS adoption, analyst coverage, and cross-listings in the U.S. on the voluntary disclosure of Brazilian public companies. We document a significant positive shift on voluntary disclosure incentives among cross-listed firms from the IFRS pre-adoption period to the post-adoption period. We also find that analyst coverage has a positive association with voluntary disclosure over the IFRS adoption process; however, the interaction between IFRS adoption and analysts affects positively only environmental and social disclosure. Our results have some implications to regulators, investors, and practitioners.