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On the Value of Transparency in Agencies with Renegotiation

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  • FRANK B. GIGLER
  • THOMAS HEMMER

Abstract

In this paper we study when it is advantageous to improve corporate transparency by allowing shareholders direct access to corporate information and when it is preferable to rely on a reporting system in which shareholders only gain access to information that management chooses to disclose. We show that in an agency model that allows for contract renegotiation, the desirability of a fully transparent reporting regime hinges on the stewardship properties of the information in question. Specifically, information that is mainly useful for predicting future events and of little use for evaluating past actions should only be made available to the public through management's self‐interested disclosures. Only if the information is useful for making inference about managerial actions can it be optimal to have full corporate transparency, so that outsiders have independent access to the same information as management.

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  • Frank B. Gigler & Thomas Hemmer, 2004. "On the Value of Transparency in Agencies with Renegotiation," Journal of Accounting Research, Wiley Blackwell, vol. 42(5), pages 871-893, December.
    • Handle: RePEc:bla:joares:v:42:y:2004:i:5:p:871-893
    DOI: 10.1111/j.1475-679X.2004.00159.x
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    References listed on IDEAS

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    1. Indjejikian, Raffi & Nanda, Dhananjay, 1999. "Dynamic incentives and responsibility accounting," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 177-201, April.
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    8. Demski, JS & Frimor, H, 1999. "Performance measure garbling under renegotiation in multiperiod agencies," Journal of Accounting Research, Wiley Blackwell, vol. 37, pages 187-214.
    9. Peter Ove Christensen & Joel S. Demski & Hans Frimor, 2002. "Accounting Policies in Agencies with Moral Hazard and Renegotiation," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1071-1090, September.
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    Cited by:

    1. Katolnik, Svetlana & Kukec, Sandra K. & Schöndube, Jens Robert, 2015. "Board Incentives and Board Independence in Dynamic Agency," Hannover Economic Papers (HEP) dp-567, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Singh, Rajdeep & Yerramilli, Vijay, 2014. "Market efficiency, managerial compensation, and real efficiency," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 561-578.
    3. Volker Laux, 2008. "Board Independence and CEO Turnover," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 137-171, March.
    4. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    5. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.

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