An Experimental Market's Investigation of Discretionary Financial Disclosure

The extent to which market forces can induce full financial disclosure by managers has long been an issue of interest to regulators. Investigating this phenomenon with naturally occurring data produces a major obstacle: since managers' private information sets are unknown, it is necessary to make assumptions about them in order to interpret the nature (e.g., favourable or unfavourable, income increasing or income decreasing) of the information that is disclosed. The validity of the inferences relies critically on the validity of these assumptions. The present study uses a laboratory experiment to test three hypotheses derived from prior analytical and empirical research: (H1) When disclosure costs are zero, managers voluntarily disclose all (good and bad) news; (H2) When disclosure costs are positive. managers only disclose news which exceeds some threshold: and (H3) The mandatory disclosure of non-proprietary information induces an increase in the disclosure of correlated. proprietary information. One hundred and fifty-six subjects participated in markets with one firm manager and three investors. Over thirteen independent periods, the managers decided whether to truthfully disclose the liquidation value of the asset under their stewardship, and the investors submitted competing bids for the asset. With costless disclosure. investors price-protected themselves when managers withheld information, but the price penalty that they imposed was insufficient to induce full disclosure. With positive disclosure cost, investors reduced the price penalty that they imposed for non-disclosure, and managers disclosed proportionally fewer of the less extreme good news. Finally, mandatory disclosure of information had no significant impact on the voluntary disclosure of correlated proprietary information. Discussion centres on our failure to support the (equilibrium) prediction from analytical research that full disclosure should obtain when disclosures are costless. Several limitations of the study are examined. and it remains an open question whether additional trials (periods) in the present study might have provided full disclosure.     

Is There a Window of Opportunity for Seasoned Equity Issuance?

The aggregate volume of equity issues is used to search for periods when seasoned equity capital can be raised at favorable terms. We find that the price reaction to equity issue announcements in high equity issue volume (HOT) periods is approximately 200 basis points lower on average than in low equity issue volume (COLD) periods. The lower price reaction in hot markets is economically important and is independent of the macroeconomic characteristics of hot and cold markets. The evidence supports the existence of windows of opportunity for equity issues that result at least partially from reduced levels of asymmetric information.     

Competition,agency and productivity

This article tests a set of hypotheses relating to agency and Schumpeterian views on how competition affects performance. A survey data set of Australian workplaces is used, with the change in labour productivity as the dependent variable. The results show strong support for the idea that intense competition raises productivity growth in managerial workplaces, but not in non‐managerial workplaces (i.e. where the principal owner also works). Testing the agency theories in more detail, we find no evidence that the number of competitors, the price elasticity of demand or a proxy for bankruptcy (pre‐tax losses) are the mechanisms behind the process. For non‐managerial workplaces the results indicate support for the idea that greater demand uncertainty reduces productivity growth. In contrast, for managerial workplaces, greater demand uncertainty tends to raise productivity growth.     

Quality,experience, and monopoly: the Soviet market for weapons under Stalin1

Monopoly is a particular problem in markets where experience goods are traded, since the consumer cannot respond to bad experiences by switching repeat purchases to another supplier. New evidence shows how the defence ministry as buyer in the Soviet market for military goods responded to this problem by investing in an evaluation of quality prior to purchase, by showing reluctance to buy, and by exploiting the available non‐market means to influence the defence industry as supplier. The effectiveness of these stratagems was limited by the defence industry's counteractions and because the buyer had no choice but to come to a compromise with the supplier.     

The Controllability of Financial Outcomes

Accounting performance measures that capture results not controlled by the person being evaluated may be dysfunctional. The aim of this paper is to provide a framework for identifying situations in which outcomes are captured by such measures as are more (less) likely to be controllable. Results of a questionnaire survey support the claim that as task uncertainty increases, individuals perceive less control over financial outcomes.