The role of the manager’s human capital in mandatory and voluntary disclosures
Authors: Yu-Lin Chen, Chia-Chi Lu, Min-Hung Tsay
Journal: Chiao Da Management Review. Jun. 2012, 32(1): 107-136.
Keywords: Voluntary disclosure; Mandatory disclosure; Information search; Performance evaluation; Manager's talent
Abstract:
This paper analyzes voluntary disclosure equilibria by
modifying Nagar's (1999) model and including
the effect of mandatory disclosures on his model. We
consider mandatory disclosures' effect in
triggering investors' information search and in motivating managers to make voluntary
disclosures. Our extended model demonstrates that managers have more incentives to disclose
private information to the capital market than Nagar's model indicates, which means the
managerial disclosure agency problem is mitigated by the interaction between mandatory and
voluntary disclosures. Moreover, our model yields additional disclosure equilibria that differ
significantly from the equilibria in Nagar (1999): incorporating both self-effect and induced
effect on the voluntary disclosure strategy rules out a full-disclosure equilibrium when the
investors have no private information. Finally, the likelihood that managers will provide
voluntary disclosures is positively related to the quality ofboth the mandatory and voluntary
disclosures. Therefore, this study has policy implications in view of recent calls for
regulating the disclosures in press releases related to earnings and setting up good accounting
systems that provide managers with more appropriate
measures of firm-specific assets.