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Information Disclosure and Corporate Governance

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  • Hermalin, Benjamin E.

    (University of California, Berkeley)

  • Weisbach, Michael S.

    (Ohio State University)

Abstract

In public-policy discussions about corporate disclosure, more is typically judged to be better than less. In particular, better disclosure is seen as a way to reduce the agency problems that plague firms. We show that this view is incomplete. In particular, our theoretical analysis shows that increased disclosure is a two-edged sword: More information permits principals to make better decisions; but it can, itself, generate additional agency problems and consequent costs to shareholders. Disclosure imposes risks on managers that they seek to ameliorate by distorting their actions in ways that are harmful to shareholders. Because the direct benefits of better disclosure accrue to the shareholders, while the direct costs accrue to management, greater disclosure will also lead to greater executive compensation, regardless of how bargaining power is divided between shareholders and management.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2008-17.

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Date of creation: Aug 2009
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Handle: RePEc:ecl:ohidic:2008-17

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Citations

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Cited by:
  1. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
  2. Fawzi Al Sawalqa, 2014. "Corporate Governance Mechanisms and Voluntary Disclosure Compliance. The Case of Banks in Jordan," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 369-384, April.
  3. Eisfeldt, Andrea L. & Kuhnen, Camelia M., 2013. "CEO turnover in a competitive assignment framework," Journal of Financial Economics, Elsevier, vol. 109(2), pages 351-372.
  4. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2013. "Product market power, industry structure, and corporate earnings management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3273-3285.
  5. Citci, Haluk & Inci, Eren, 2012. "The Masquerade Ball of the CEOs and the Mask of Excessive Risk," MPRA Paper 35979, University Library of Munich, Germany.
  6. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.
  7. Garay, Urbi & González, Maximiliano & Guzmán, Alexander & Trujillo, María Andrea, 2013. "Internet-based corporate disclosure and market value: Evidence from Latin America," Emerging Markets Review, Elsevier, vol. 17(C), pages 150-168.
  8. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
  9. Alex Edmans & Mirko Heinle & Chong Huang, 2013. "The Real Costs of Disclosure," NBER Working Papers 19420, National Bureau of Economic Research, Inc.
  10. Kurt A. Desender & Mircea Epure, 2013. "Corporate governance and corporate social performance," Economics Working Papers 1398, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2014.
  11. Pablo Ruiz-Verdú & Ravi Singh, 2014. "Board Independence, CEO Pay, and Camouflaged Compensation," Business Economics Working Papers wb140704, Universidad Carlos III, Departamento de Economía de la Empresa.

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