IDEAS home Printed from https://ideas.repec.org/a/ucp/jlstud/v34y2005p1-25.html
   My bibliography  Save this article

The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest

Author

Listed:
  • Daylian M. Cain
  • George Loewenstein
  • Don A. Moore

Abstract

Conflicts of interest can lead experts to give biased and corrupt advice. Although disclosure is often proposed as a potential solution to these problems, we show that it can have perverse effects. First, people generally do not discount advice from biased advisors as much as they should, even when advisors’ conflicts of interest are disclosed. Second, disclosure can increase the bias in advice because it leads advisors to feel morally licensed and strategically encouraged to exaggerate their advice even further. As a result, disclosure may fail to solve the problems created by conflicts of interest and may sometimes even make matters worse.

Suggested Citation

  • Daylian M. Cain & George Loewenstein & Don A. Moore, 2005. "The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 1-25, January.
  • Handle: RePEc:ucp:jlstud:v:34:y:2005:p:1-25
    DOI: 10.1086/426699
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/426699
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: https://libkey.io/10.1086/426699?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
    2. Dye, Ronald A., 2001. "An evaluation of "essays on disclosure" and the disclosure literature in accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 181-235, December.
    3. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    4. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dobler, Michael, 2008. "Incentives for risk reporting -- A discretionary disclosure and cheap talk approach," The International Journal of Accounting, Elsevier, vol. 43(2), pages 184-206.
    2. Noam Shamir & Hyoduk Shin, 2016. "Public Forecast Information Sharing in a Market with Competing Supply Chains," Management Science, INFORMS, vol. 62(10), pages 2994-3022, October.
    3. Nikolaev, V. & van Lent, L.A.G.M., 2005. "The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy," Other publications TiSEM 04869b30-e8a9-4ecf-84ae-6, Tilburg University, School of Economics and Management.
    4. Jordi Caballé & Ariadna Dumitrescu, 2016. "Disclosure of Corporate Tax Reports, Tax Enforcement, and Insider Trading," Working Papers 911, Barcelona Graduate School of Economics.
    5. Thakor, Anjan V., 2015. "Strategic information disclosure when there is fundamental disagreement," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 131-153.
    6. Eti Einhorn, 2005. "The Nature of the Interaction between Mandatory and Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 43(4), pages 593-621, September.
    7. Johanna Hertel & John Smith, 2013. "Not so cheap talk: costly and discrete communication," Theory and Decision, Springer, vol. 75(2), pages 267-291, August.
    8. Daniel Aobdia, 2018. "Employee mobility, noncompete agreements, product-market competition, and company disclosure," Review of Accounting Studies, Springer, vol. 23(1), pages 296-346, March.
    9. Mark Bagnoli & Susan G. Watts, 2007. "Financial Reporting and Supplemental Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 45(5), pages 885-913, December.
    10. Luminita Enache & Khaled Hussainey, 2020. "The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 413-445, February.
    11. Alain Schatt & Leonidas Doukakis & Corinne Bessieux-Ollier & Elisabeth Walliser, 2016. "Do Goodwill Impairments by European Firms Provide Useful Information to Investors?," Accounting in Europe, Taylor & Francis Journals, vol. 13(3), pages 307-327, September.
    12. Forges, Francoise & Koessler, Frederic, 2005. "Communication equilibria with partially verifiable types," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 793-811, November.
    13. Ying Cao & Linda A. Myers & Albert Tsang & Yong George Yang, 2017. "Management forecasts and the cost of equity capital: international evidence," Review of Accounting Studies, Springer, vol. 22(2), pages 791-838, June.
    14. Elisabeth Dedman, 2004. ""Discussion of" Reactions of the London Stock Exchange to Company Trading Statement Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 37-47.
    15. Faidon Kalfaoglou & Alexandros Sarris, 2006. "Modeling the Components of Market Discipline," Working Papers 36, Bank of Greece.
    16. Richard Chung & Bryan Byung-Hee Lee & Woo-Jong Lee & Byungcherl Charlie Sohn, 2016. "Do Managers Withhold Good News from Labor Unions?," Management Science, INFORMS, vol. 62(1), pages 46-68, January.
    17. Flora Muiño & Marco Trombetta, 2009. "Does graph disclosure bias reduce the cost of equity capital?," Accounting and Business Research, Taylor & Francis Journals, vol. 39(2), pages 83-102.
    18. Cristiana Cardi & Camilla Mazzoli & Sabrina Severini, 2018. "Friend or foe? The effect of corporate governance on intellectual capital disclosure in IPOs," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 15(1), pages 1-12, February.
    19. Nick Collett, 2004. "Reactions of the London Stock Exchange to Company Trading Statement Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 3-35, January.
    20. Hoang, Daniel & Ruckes, Martin, 2017. "Corporate risk management, product market competition, and disclosure," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 107-121.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlstud:v:34:y:2005:p:1-25. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.journals.uchicago.edu/JLS .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JLS .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.