|Title:||Incentives for Voluntary Disclosure|
|Keywords:||Rule l0b-5;Disclosure;Noisy rational expectations equilibrium;Principal-agent contracts|
|Series/Report no.:||Joshua Ronen-02|
|Abstract:||Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal-agent contracts between owners contract designers - and privately informed managers, owners are the ultimate firms' voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.|
|Appears in Collections:||Accounting Working Papers|
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