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The joint effects of materiality thresholds and voluntary disclosure incentives on firms' disclosure decisions

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  • Heitzman, Shane
  • Wasley, Charles
  • Zimmerman, Jerold

Abstract

Under GAAP, SEC and exchange listing rules, managers must disclose material information. We construct a disclosure specification incorporating managers' obligation to disclose material information and voluntary disclosure incentives. We demonstrate that tests of the incentives to voluntarily disclose information must recognize such information is often disclosed because of an underlying duty to disclose. Our empirical tests isolating the impact of materiality on firms' disclosures have greater explanatory power over empirical tests that do not. Voluntary disclosure incentives better explain disclosure when the information is less likely to be material. Tests of voluntary disclosure theories ignoring materiality likely lead to incorrect inferences.

Suggested Citation

  • Heitzman, Shane & Wasley, Charles & Zimmerman, Jerold, 2010. "The joint effects of materiality thresholds and voluntary disclosure incentives on firms' disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 109-132, February.
  • Handle: RePEc:eee:jaecon:v:49:y:2010:i:1-2:p:109-132
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    Cited by:

    1. Silvia Gardini & F. Marta L. Di Lascio & Franco Visani, 2017. "How cultural and contextual variables affect the disclosure and transparency of pro-forma indicators," BEMPS - Bozen Economics & Management Paper Series BEMPS41, Faculty of Economics and Management at the Free University of Bozen.
    2. Rogers, Jonathan L. & Skinner, Douglas J. & Van Buskirk, Andrew, 2009. "Earnings guidance and market uncertainty," Journal of Accounting and Economics, Elsevier, pages 90-109.
    3. Roychowdhury, Sugata & Martin, Xiumin, 2013. "Understanding discretion in conservatism: An alternative viewpoint," Journal of Accounting and Economics, Elsevier, pages 134-146.
    4. Fu, Renhui & Kraft, Arthur & Zhang, Huai, 2012. "Financial reporting frequency, information asymmetry, and the cost of equity," Journal of Accounting and Economics, Elsevier, pages 132-149.
    5. Sung Gon Chung & Beng Wee Goh & Jeffrey Ng & Kevin Ow Yong, 2017. "Voluntary fair value disclosures beyond SFAS 157’s three-level estimates," Review of Accounting Studies, Springer, vol. 22(1), pages 430-468, March.
    6. repec:gam:jsusta:v:9:y:2017:i:12:p:2182-:d:120452 is not listed on IDEAS
    7. Amel Ben Rhouma & Marie-José Scotto, 2011. "Implications du principe de matérialité sur le contenu du reporting Développement Durable," Post-Print hal-00646525, HAL.
    8. Leung, P.Y.E., 2013. "The influence of reporting standards and inter-firm relationships on financial reporting," Other publications TiSEM c78b51bd-6546-4eac-9f50-3, Tilburg University, School of Economics and Management.
    9. Lawrence, Alastair & Sloan, Richard & Sun, Yuan, 2013. "Non-discretionary conservatism: Evidence and implications," Journal of Accounting and Economics, Elsevier, pages 112-133.
    10. Lo, Kin, 2010. "Materiality and voluntary disclosures," Journal of Accounting and Economics, Elsevier, pages 133-135.
    11. KIM, Hyonok & YASUDA, Yukihiro, 2016. "Mandatory adoption of business risk disclosure: evidence from Japanese firms," Working Paper Series G-1-14, Center for Financial Research, Graduate School of Commerce and Management, Hitotsubashi University.
    12. Al-Hadi, Ahmed & Taylor, Grantley & Hossain, Mahmud, 2015. "Disaggregation, auditor conservatism and implied cost of equity capital: An international evidence from the GCC," Journal of Multinational Financial Management, Elsevier, pages 66-98.
    13. Dambra, Michael & Field, Laura Casares & Gustafson, Matthew T., 2015. "The JOBS Act and IPO volume: Evidence that disclosure costs affect the IPO decision," Journal of Financial Economics, Elsevier, vol. 116(1), pages 121-143.
    14. Núñez-Nickel, Manuel & Gago Rodríguez, Susana, 2010. "Evolutionary model of existing competition and voluntary disclosure," INDEM - Working Paper Business Economic Series id-10-06, Instituto para el Desarrollo Empresarial (INDEM).
    15. Srivastava, Anup, 2014. "Why have measures of earnings quality changed over time?," Journal of Accounting and Economics, Elsevier, pages 196-217.
    16. Nishant, Rohit & Goh, Mark & Kitchen, Philip J., 2016. "Sustainability and differentiation: Understanding materiality from the context of Indian firms," Journal of Business Research, Elsevier, vol. 69(5), pages 1892-1897.
    17. 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.
    18. Blacconiere, Walter G. & Frederickson, James R. & Johnson, Marilyn F. & Lewis, Melissa F., 2011. "Are voluntary disclosures that disavow the reliability of mandated fair value information informative or opportunistic?," Journal of Accounting and Economics, Elsevier, pages 235-251.
    19. João Correia-da-Silva, 2015. "Two-period economies with price-contingent deliveries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 509-525.
    20. Rogers, Jonathan L. & Van Buskirk, Andrew, 2013. "Bundled forecasts in empirical accounting research," Journal of Accounting and Economics, Elsevier, pages 43-65.

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