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The asset pricing and real implications of relationship intensity disclosure

Author

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  • Jiang, Xu
  • Mondria, Jordi
  • Yang, Liyan

Abstract

Investors in financial markets are often uncertain about the relationship intensity between firms and have to rely on firms’ disclosure of such relationship intensity. We analytically study the asset pricing implications of this relationship intensity uncertainty and how such uncertainty affects firms’ incentives to form and disclose their relationship intensities (i.e., the real implications). We find that while such disclosure has a positive price impact by increasing the expected cash flow, it also has a negative impact by reducing the diversification benefit of investing in multiple firms that have more correlated cash flows. The price impact upon relationship intensity disclosure is therefore not monotone: it increases with the expected benefit of relationship and decreases with the risk of the underlying relationship. Our analysis implies that mandatory disclosure of firm relationship intensities may both destroy relationship development and reduce investor welfare, i.e., has adverse real consequences.

Suggested Citation

  • Jiang, Xu & Mondria, Jordi & Yang, Liyan, 2025. "The asset pricing and real implications of relationship intensity disclosure," Journal of Accounting and Economics, Elsevier, vol. 80(1).
    • Handle: RePEc:eee:jaecon:v:80:y:2025:i:1:s0165410125000060
    DOI: 10.1016/j.jacceco.2025.101770
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    References listed on IDEAS

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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