Optimal Opacity on Financial Markets

We analyze the incentives for information disclosure in financial markets. We show that borrowers may have incentives to voluntarily withhold information and that doing so is most attractive for claims that are inherently hard to value, such as portfolios of subprime mortgages. Interestingly, opacity may be optimal even though it increases informational asymmetries between contracting parties. Finally, in our setting a government can intervene in ways that ensure the liquidity of financial markets and that resemble the initial plans for TARP. Even if such interventions are ex-post optimal, they affect incentives for information disclosure and have ambiguous ex-ante effects

On the value relevance of asymmetric financial reporting policies

This paper considers an overlapping generations model where investors trade in a firm's stock. Investment risk is partly determined by the volatility of the stock price at which current investors can sell their shares to the next generation of investors. It is shown that asymmetric reporting of good and bad news is value relevant as it affects the allocation of risk among future generations of shareholders

Costly Disclosures in a Voluntary Disclosure Model with an Opponent

This paper analyzes voluntary disclosure equilibria when the voluntary disclosure model presented in WAGENHOFER (1990) is modified so as to include fixed disclosure costs as used in VERRECCHIA (1983). It turns out that incorporating both disclosure and proprietary costs rules out full disclosure equilibria. Moreover, it yields additional disclosure equilibria that differ significantly from the equilibria in VERRECCHIA (1983) and WAGENHOFER (1990). Thus, in the extended model the firm is provided with additional incentives to withhold its private information from the public. Keywords: Voluntary disclosure, disclosure costs, proprietary costs. JEL Codes: D82, M49. 1 CentER Accounting Research Group, Tilburg University, PO Box 90153, 5000 LE, Tilburg, The Netherlands. Phone: ++31 13 4663334, fax: ++31 13 4663066, e-mail: [email protected] 2 The author would like to thank Doug DeJong, Teye Marra, and Anja De Waegenaere for their helpful comments and suggestions. 1 Introduction Volun..

On the Value Relevance of Asymmetric Financial Reporting Policies

ABSTRACT This paper considers an overlapping generations model where investors trade in a firm's stock. Investment risk is partly determined by the volatility of the stock price at which current investors can sell their shares to the next generation of investors. It is shown that asymmetric reporting of good and bad news is value relevant as it affects the allocation of risk among future generations of shareholders. Copyright (c), University of Chicago on behalf of the Institute of Professional Accounting, 2008.