The Effects of Disclosure Regulation of an Innovative Firm

Firms in an R&D race actively manage rivals’ beliefs by disclosing and concealinginformation on their cost of investment. The firms’ disclosure strategies affect theirincentives to invest in R&D, and to acquire information. We compare equilibria undervoluntary disclosure with those under mandatory disclosure in a model where the firms’cost of investment are identically independently distributed. Under voluntary disclosurefirms conceal bad news, and disclose good news only if little knowledge spills over totheir rival. Under mandatory disclosure firms expect higher profits for giveninformation acquisition investments, but they may acquire less information. ZUSAMMENFASSUNG - (Die Wirkung von Offenlegungsvorschriften auf innovative Firmen: Unkorrelierte Werte) Unternehmen, welche an einem F&E -Wettbewerb teilnehmen, managen aktiv die Erwartungen ihrer Konkurrenten, in dem sie gezielt entscheiden, ob sie Informationen über ihre Investitionskosten veröffentlichen oder geheim halten. Durch ihre Offenlegungsstrategien beeinflussen sie sowohl die Anreize Ihrer Konkurrenten Informationen zu sammeln, wie auch deren Anreize, F&E zu betreiben. Anhand eines Modells, in dem die Investitionskosten der Unternehmen unabhängig verteilt sind, vergleicht der Beitrag Gleichgewichte in denen die Unternehmen freiwillig wählen, ob sie ihre Informationen offen legen wollen, mit den Gleichgewichten, bei denen Unternehmen ihre Information offen legen müssen. Können die Unternehmen selbstständig entscheiden, ob sie ihre Informationen offen legen wollen, so führt dies dazu, dass sie schlechte Nachrichten verbergen und gute Nachrichten nur dann veröffentlichen, wenn wenig ihres Wissens von den Konkurrenten genutzt werden kann. Sind die Unternehmen jedoch verpflichtet ihre Informationen offenzulegen, so erwarten sie einerseits höhere Profite für gegebene Informationsinvestitionen, aber investieren andererseits u.U. weniger in die Informationsbeschaffung.R&D Competition, Disclosure Regulation, Knowledge Spillovers

Transparency, financial accounting information, and corporate governance

Audited financial statements along with supporting disclosures form the foundation of the firm-specific information set available to investors and regulators. In this article, the authors discuss economics-based research focused on the properties of accounting systems and the surrounding institutional environment important to effective governance of firms. They provide a framework for understanding the operation of accounting information in an economy, discuss a broad range of important research findings, present a conceptual framework for characterizing and measuring corporate transparency at the country level, and isolate a number of future research possibilities.Corporations - Accounting ; Stockholders ; Corporate governance

Why do retail investors make costly mistakes? An experiment on mutual fund choice

There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naïve diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses. This article offers a first step in understanding the investor decision-making process. We use an internet-based experiment to disentangle possible explanations for inefficient investment decisions. The experiment employs a simplified construct of an employee’s allocation among the options in a retirement plan coupled with technology that enables us to collect data on the specific information that investors choose to view. In addition to collecting general information about the process by which investors choose among mutual fund options, we employ an experimental manipulation to test the effect of an instruction on the importance of mutual fund fees. Pairing this instruction with simplified fee disclosure allows us to distinguish between motivation-limits and cognition-limits as explanations for the widespread findings that investors ignore fees in their investment decisions. Our results offer partial but limited grounds for optimism. On the one hand, within our simplified experimental construct, our subjects allocated more money, on average, to higher-value funds. Furthermore, subjects who received the fees instruction paid closer attention to mutual fund fees and allocated their investments into funds with lower fees. On the other hand, the effects of even a blunt fees instruction were limited, and investors were unable to identify and avoid clearly inferior fund options. In addition, our results suggest that excessive, naïve diversification strategies are driving many investment decisions. Although our findings are preliminary, they suggest valuable avenues for future research and important implications for regulation of retail investing