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The Enforcement of Mandatory Disclosure Rules

Author

Listed:
  • Matthias Dahm

    (School of Economics, University of Nottingham)

  • Paula Gonzalez

    (Universidad Pablo de Olavide, Department of Economics)

  • Nicolas Porteiro

    (Universidad Pablo de Olavide, Department of Economics)

Abstract

TThis paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm holds back information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that (i) the probability of detection and the fine might be complements; (ii) the optimal monitoring policy does not necessarily eliminate selective reporting entirely; (iii) even when there is some selective reporting in equilibrium and more stringent monitoring is costless, increasing the probability of detection might not be beneficial; and (iv) when society values selectively reported information, the optimal fine might not be the largest possible fine.

Suggested Citation

  • Matthias Dahm & Paula Gonzalez & Nicolas Porteiro, 2016. "The Enforcement of Mandatory Disclosure Rules," Discussion Papers 2016-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2016-19
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    File URL: https://www.nottingham.ac.uk/cedex/documents/papers/cedex-discussion-paper-2016-19.pdf
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    Cited by:

    1. Xianpei Hong & Xinlu Cao & Yeming Gong & Wanying (amanda) Chen, 2021. "Quality information acquisition and disclosure with green manufacturing in a closed-loop supply chain," Post-Print hal-03188234, HAL.
    2. Elmagrhi, Mohamed H. & Ntim, Collins G. & Wang, Yan & Elamer, Ahmed A. & Crossley, Richard, 2021. "The effect of vice-chancellor characteristics and internal governance mechanisms on voluntary disclosures in UK higher education institutions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 45(C).
    3. Dahm, Matthias & González, Paula & Porteiro, Nicolás, 2018. "The enforcement of mandatory disclosure rules," Journal of Public Economics, Elsevier, vol. 167(C), pages 21-32.
    4. Hong, Xianpei & Cao, Xinlu & Gong, Yeming & Chen, Wanying, 2021. "Quality information acquisition and disclosure with green manufacturing in a closed-loop supply chain," International Journal of Production Economics, Elsevier, vol. 232(C).
    5. Huan Cao & Xu Guan & Tijun Fan & Li Zhou, 2020. "The Acquisition of Quality Information in a Supply Chain with Voluntary vs. Mandatory Disclosure," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 595-616, March.
    6. Herresthal, Claudia, 2022. "Hidden testing and selective disclosure of evidence," Journal of Economic Theory, Elsevier, vol. 200(C).

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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