Disclosure Regulation in Duopoly Markets: Proprietary Costs and Social Welfare

Abstract

The argument of proprietary costs is commonly used by firms to object against proposed disclosure regulations. The goal of this paper is to improve our understanding of the welfare consequences of disclosure in duopoly markets and to identify market settings where proprietary costs are a viable argument for firms to remain silent. We, therefore, solve the optimal disclosure strategies and distinguish two different potentially costly effects of disclosing private information: the strategic information effect and the market information effect. We identify the market settings for which a regulator prefers to impose disclosure regulation so as to maximise consumer surplus or total surplus. Regulation may be necessary because (i) the increase in welfare outweighs proprietary costs to the firms, or (ii) firms are trapped in a prisoners' dilemma. The first primarily applies to Bertrand competition with demand uncertainty and, to a lesser extent, to Cournot competition. The second applies primarily to Cournot competition and Bertrand competition with cost uncertainty.     

Disclosure Policy in a Mixed Market

This paper investigates the optimal disclosure strategy for private information in a mixed duopoly market, where a state-owned enterprise (SOE) and a joint-stock company compete to supply products. I construct a model where the two firms compete in either quantity or price, and uncertainty is associated with either marginal cost or market demand. The model identifies the optimal disclosure strategies that constitute a perfect Bayesian equilibrium by type of competition and uncertainty. In Cournot competition, both firms disclose information under cost uncertainty, while only the SOE or neither firm discloses information under demand uncertainty. Alternatively, in Bertrand competition, only the joint-stock company discloses information under cost uncertainty or demand uncertainty. Recently, developed countries have required the same level of disclosure standards for SOEs as for ordinary joint-stock companies. The findings described in this paper warn that such mandatory disclosure by SOEs can trigger a reaction by joint-stock companies, putting the economy at risk of a reduction in welfare.     

Private Debt and Timely Loss Recognition

Abstract

In this study, we investigate whether private debt contracting provides incentives for borrowers to recognize economic losses earlier in accounting earnings. Focusing on the window around firms' issuances of private loans, we document that timely loss recognition significantly increases following an issuance. This effect is significantly stronger for debt contracts that include performance covenants acting as trip-wires when firm performance deteriorates. We also find that timely loss recognition is particularly used when writing debt contracts is hampered by uncertainty about a firm's future development. These findings are consistent with timely loss recognition being used to increase contract efficiency by facilitating state-contingent control allocation based on a borrower's performance over the loan term.     

The effect of carbon dissemination on cost of equity

This study examines whether firms can influence their cost of equity (COE) by broadly disseminating their carbon information over Twitter. We study firms' dissemination decisions of carbon information by developing a comprehensive measure of carbon information that a firm makes on Twitter, referred to as iCarbon. Using a sample of 1,737 firm‐year observations for 584 nonfinancial firms with a Twitter account and listed on the U.S. NASDAQ stock exchange over the period 2009–2015, we find that iCarbon is significantly and negatively associated with COE. Our results are consistent after determining the effect of Bloomberg's environmental and environmental, social, and governance disclosure. The findings also hold when using alternative measures of COE and iCarbon.     

Private Equity Investments and Disclosure Policy

In the current study, we dynamically analyze unlisted firms' voluntary disclosure decisions around private equity (PE) participation. First, we disentangle the role of disclosure in attracting PE investments. In addition, we examine the extent to which a firm's disclosure policy is affected by the changing corporate setting and intensified corporate governance after having received PE. We find no evidence that firms would employ increased disclosure to signal their quality in the years preceding the PE financing. However, we document a significant switch to increased financial disclosure from the PE investment year onwards, consistent with the hypothesis that PE investor presence positively affects portfolio firms' disclosure decisions. Further, we show that the proportional PE ownership stake is positively related to increased disclosure, but only at very high ownership levels. We explain these results in that both internal and external information demands call for higher public disclosure in PE firms. We conclude that the changing information environment resulting from a PE investment stimulates increased public financial disclosure. Our results contribute to illustrate how an indisputable change in governance resulting from a PE investment affects inter-temporal corporate disclosure decisions in unlisted firms.     

Does Innovation Drive Environmental Disclosure? A New Insight into Sustainable Development

Sustainable development is a hot topic in business and the media, and there is a growing demand for reliable environmental disclosure from a wide range of stakeholders. Ethical performance, including social and environmental performance, is actively scrutinized. A firm's stakeholders expect reliable disclosure to correctly assess its performance. Research on the link between environmental disclosure and environmental performance shows mixed results. Both a positive and a negative association have been found. This study reexamines this association by considering environmental innovation as a key determinant of environmental disclosure. We find that environmental performance and environmental innovation jointly determine environmental disclosure. At low levels of environmental performance, innovative firms tend to disclose more than their non‐innovative counterparts to inform stakeholders about their innovation and strategy to obtain an improved environmental performance. This disclosure gap tends to diminish as innovative firms become better environmental performers. The higher levels of environmental disclosure are closely associated with firms' environmental performance for both groups. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Beyond profitability: effects of acquisitions on technical efficiency in the Italian pasta industry

Unlike traditional studies on the impact of ownership changes—which use either profitability measures or stock prices—this paper investigates the impact of acquisitions on acquired firms' technical efficiency. Using a panel of Italian firms in the pasta industry for the 1981–1997 period, I estimate a stochastic production frontier with exogenous factors affecting efficiency in a translog specification with non‐neutral technical progress. The main result is that acquired firms experience, within the 6 years period following the acquisition, an increase in technical efficiency of the order of 10%. This result is statistically significant and proves to be robust with respect to the inclusion of size and calendar year effects as explanatory variables of firms' inefficiency. These findings contribute to the debate on the welfare gains of ownership changes by providing evidence that mergers and acquisitions lead to cost savings, due to the reduction of acquired firms' X‐inefficiency. Copyright © 2002 John Wiley & Sons, Ltd.     

The ‘third hand’: Private sector consultants in public sector accounting change

Abstract

This paper explores the role of large private sector consulting firms in the promotion and implementation of public sector accrual accounting. By focusing on an early adopter of accrual accounting for its entire public sector, this research presents an analysis of the activities of large consulting firms in the process of a significant public sector accounting change. The role of consultants in the change is presented by analysing primary data extracted from archival sources and oral histories provided by a number of prominent actors classified as users of information (politicians), producers of information (bureaucrats) or accounting consultants. The role and impact of the consulting firms' actions can be better understood by applying concepts of non-coercive isomorphism and the interplay between self-interest and perceived public interest. The consulting firms are shown to have used phantom images to promote the case for accounting change. This was done with a zealous belief that bringing public sector accounting into line with private sector accounting was an inherently righteous objective.     

Quantity and price controls by the firm under demand uncertainty and welfare implications

A monopoly facing an uncertain demand can affect its profit distribution through the choice of ex ante controls. This paper compares two modes of behavior - price-setting and quantity-setting - in the context of a mean-variance model. The main results are: (a) With nonlinear cost, the monopoly will not be indifferent between the two modes. In the particular case of quadratic cost, conditions for the dominance of price-setting over quantity-setting behavior are derived. (b) Whereas it is well-known that the risk averse, quantity-setting monopoly will produce less under uncertainty than under certainty (or risk neutrality), the price-setting monopoly increases its expected output when faced by uncertain demand, possibly exceeding even the competitive output under uncertainty. (c) Using expected social surplus as a welfare criterion, price-setting emerges as the welfare-dominant behavior when there is a conflict between the privately and the socially preferred modes. (d) Finally, there exist conditions where price-setting monopolies welfare-dominate a competitive industry facing the same random demand.     

A qualitative response analysis of UK firms' employment and output decisions

This paper investigates firms' employment and output decisions and presents some empirical evidence concerning the rationality of firms' expectations. The dymanic model is based on the assumptions of convex adjustment costs and monopolistic competition in the product market. The results are obtained using categorical information on individual firms contained in business surveys collected by the Confederation of British Industry. Ordered probit models are used to estimate the employment and output equations. We find that expected demand is a critical determinant of firms' decisions, the effect of changes in cost conditions is not as well determined, and the data are not consistent with the rational expectations hypothesis.     

The Influence of Board Composition on Sustainable Development Disclosure

Despite knowing the potential effect of social reporting on firms' continuity, there is limited research into the influence of the composition of boards of directors on CSR disclosure. This paper adds to the emerging CSR literature empirical evidence by examining how board composition relates to a firm's social and environmental disclosure as well as the implementation of social policies. Using a sample of FTSE 350 firms for the period 2007–2012, the results show that higher board independence facilitates the conveying of firms' good citizenship image through enhancing societal conscience. The results also show that female participation on boards is favorably affecting CSR engagement and reporting as well as the establishment of ethical policies. Hence, the research suggests that boards with higher female participation and independence boost the legitimacy of CSR reporting. Board gender diversity and independence facilitates directing part of the firm's scarce resources toward value maximizing social projects and subsequent reporting on these. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Nonlinear Pricing and Oligopoly

We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.     

Signaling Quality in an Oligopoly When Some Consumers Are Informed

This paper considers a signaling game between two competing firms and consumers. The firms have common private information concerning their qualities, and some of the consumers are informed about the firms' qualities. Firms use prices and uninformative advertising as signals of quality. The model reveals that in the separating equilibrium, prices are first climbing and then declining with the proportion of informed consumers, while the expenditure on uninformative advertising is declining. Firms' profits are highest when the proportion of informed consumers is at an intermediate level. Pooling equilibria exist if the proportion of informed consumers is below a certain threshold.     

The Welfare Effects of Consumers' Reports of Bribery

A primary means of bureaucratic oversight is consumer complaints. Yet this important control mechanism has received very little attention in the literature on corruption. I study a signaling game of corruption in which uninformed consumers require a government service from informed officials. A victim of corruption can report corrupt officials whose supervisors are negligent or conscientious but an official's type is his private information. I find that social welfare may be nonmonotonic in the proportion of conscientious supervisors. Several examples show that an increase in the proportion of conscientious supervisors decreases social welfare if the mass of conscientious supervisors is below a critical level. I find that this perverse result does not hold if (a) the bribe is very large, or (b) bribe‐giving is legalized. I also find that there is an equilibrium in which no one reports corruption.     

Monitoring effect of transparency: How does government environmental disclosure facilitate corporate environmentalism?

Environmental information transparency is a key policy instrument in environmental governance, which has been emphasized in most of the literature. Although a large body of research has focused on its role at the national or industrial level in the developed countries, few studies have extended it to emerging economies and tested its role in the subnational context. In this paper, we have empirically examined how government environmental disclosure shapes corporate environmentalism in the context of China. It is argued that the information transparency of government environmental disclosure can promote corporate environmentalism by providing supports for governments' decision‐making of environmental governance, the activeness of environmental nongovernment organizations, and the participation of general public in environmental issues. Especially, we have highlighted two kinds of influences on focal relationship: booster role of bureaucratic capability in the diffusion of environmental institutional pressure and receiver role of organization slack and industrial competition in the perception of environmental institutional pressure. Using a panel dataset of Chinese publicly listed firms from 2008 to 2015, a positive relationship between government's environmental information transparency and corporate environmentalism is found. In addition, our result has shown that this relationship will be stronger for regions where government bureaucracy capabilities are stronger. This study contributes to understanding of the process of firms' strategic choice facing environmental and institutional changes in emerging economies.     

Company Characteristics and Environmental Policy

This paper investigates the relationship between various firm characteristics and environmental disclosures. Our findings evidence that firms with higher environmental ratings present a statistically significant larger size, belong to more environmentally sensitive industries as compared with firms with lower environmental ratings and disclose environmental information according to GRI guidelines. However, neither profitability nor listing status seems to explain differences in environmental disclosure practices between Greek companies. The most influential variable for explaining firms' variation in environmental ratings is size, followed by GRI reporting and industry membership. This study adds to the international research on environmental disclosure by providing empirical data from a country, Greece, where empirical evidence is still relatively unknown, extending the scope of the current understanding of the environmental reporting practices. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

自媒体帮助控股股东在定向增发中获利了吗？

考察了上市公司控股股东如何利用自媒体信息披露在定向增发融资中调节股价的变化,从而获取额外收益的过程。研究发现：控股股东为使定向增发融资顺利进行,倾向于在定向增发准备期频繁发布自媒体信息,以抬高股价吸引外部投资者关注,并且当发行对象不包括控股股东时,通过发布自媒体信息来抬高股价的行为会更加显著;而在定增新股定价期间,定向增发对象包括控股股东的上市公司却会显著减少自媒体信息发文数量,以压低股票价格,帮助控股股东以较低对价购入定增股票。进一步分析发现：上市公司中机构投资者持股对控股股东定价期间压低股价的行为具有显著抑制作用。从自媒体信息披露这一崭新视角切入,证实了我国上市公司控股股东在定向增发过程中既有通过自媒体信息披露使定向增发吸引关注、满足融资需求的动机,又有利用自媒体信息披露降低控股股东参与定向增发的成本、对自身进行利益输送的动机;而机构投资者能够有效监督这一过程中大股东的利己行为。研究结论为加强对上市公司在定向增发中信息披露的监管,保护中小投资者利益提供了有益的启示。     

The Impact of Corporate Governance on IFRS Adoption Choices

We investigate the association between corporate governance strength and EU listed firms' choices with respect to International Financial Reporting Standards (IFRS) adoption in 2005. We measure governance strength by aggregating variables such as board independence, board functioning and audit committee effectiveness. The firms exhibit heterogeneity in both compliance and disclosure quality; some firms do not even meet the minimum disclosure requirements. Regression results show that stronger governance firms disclose more information, comply more fully and use IAS 39's carve-out provision less opportunistically. These findings are germane to accountants, managers and regulators in countries soon to adopt IFRS.     

Price and Quantity Contracts in a Mixed Duopoly with a Socially Concerned Firm

I study the endogenous choice of a price or quantity contract in a mixed duopoly with a socially concerned firm, which maximizes a combination of profit and consumer welfare. Equilibria with price and quantity contracts might co‐exist; welfare under price competition might be lower than under quantity competition; the firms' profit ranking might be different from that of a private duopoly or mixed duopoly with a public firm. Hence, if a firm follows a social strategy, the optimal market strategy crucially depends on the levels of social concern and competition in the market. The presence of socially concerned firms may change the mode of competition. Copyright © 2014 John Wiley & Sons, Ltd.     

The influence of countries' climate change-related institutional profile on voluntary environmental disclosures

This paper analyzes how the regulative, normative, and cultural dimensions of institutions exert pressure both on companies' decisions to voluntarily disclose environmental information and on the quality of the information disclosed. Prior research has focused on the influence of economic, disclosure, and generic institutional determinants, although little attention has been paid to the analysis of the influence exerted by climate change-related institutional pillars. The results show that the three institutional pillars have different effects as regards both the decision to respond and the quality of disclosure. The regulative pillar positively influences the response decision but does not influence disclosure quality. The normative pillar positively affects both the propensity of companies to disclose and the quality of the information reported. Meanwhile, the cultural pillar positively influences disclosure quality, but it has no effect on firms' decisions to disclose environmental information. This paper is the first to analyze whether the institutional profile of climate change in different countries influences voluntary environmental disclosures.