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Information Disclosure and Corporate Governance

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  • Hermalin, Benjamin E.

    ()
    (University of California)

  • Weisbach, Michael S.

    ()
    (Ohio State University)

Abstract

In public-policy discussions about corporate disclosure, more is typically judged 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 other costs for shareholders, including increased executive compensation. Consequently, there can exist a point beyond which additional disclosure decreases firm value. We further show that larger firms will tend to adopt stricter disclosure rules than smaller firms, ceteris paribus. Firms with better disclosure will tend, all else equal, to employ more able management. We show that governance reforms that have imposed greater disclosure could, in part, explain recent increases in both CEO compensation and CEO turnover rates.

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Bibliographic Info

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 76.

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Length: 41 pages
Date of creation: 21 Sep 2010
Date of revision: 01 Jun 2011
Publication status: Forthcoming as Hermalin, Benjamin E. and Michael S. Weisbach, 'Information Disclosure and Corporate Governance' in Journal of Finance.
Handle: RePEc:hhs:sifrwp:0076

Note: Please find updated version on http://fisher.osu.edu/fin/faculty/weisbach/wpapers.html
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Keywords: Corporate governance; Corporate disclosure;

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References

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Citations

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Cited by:
  1. Eisfeldt, Andrea & Kuhnen, Camelia M., 2010. "CEO turnover in a competitive assignment framework," MPRA Paper 22367, University Library of Munich, Germany.
  2. 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.
  3. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.
  4. 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.
  5. Edmans, Alex & Heinle, Mirko & Huang, Chong, 2013. "The Real Costs of Disclosure," CEPR Discussion Papers 9637, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Kurt A. Desender & Mircea Epure, 2014. "Corporate Governance and Corporate Social Performance," Working Papers 730, Barcelona Graduate School of Economics.
  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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