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UBC Theses and Dissertations

Corporate voluntary disclosures of pre-decision information Sankar, Mandira R.


This dissertation consists of two essays in the area of corporate voluntary disclosure of predecision information. The first essay entitled, "Disclosure Choice in a Duopoly", focusses on the phenomenon of partial disclosure, where the manager of the firm discloses selected signals and withholds the rest. The manager may or may not receive private information which is related to both firm-specific and industry-wide common factors. The motivation for disclosure (non-disclosure) is derived from the proprietary nature of the manager's private information. The cost (benefit) of disclosure is modelled in an imperfectly competitive product market, where an uninformed opponent’s reaction to a disclosure affects the manager's expected profit. Our results indicate that the nature of the manager's optimal disclosure policy is crucially dependent on whether the signal is more informative about firm-specific or industry-wide common factors. Unfavourable news is disclosed and favourable news withheld if the signal is more informative about common factors. On the other hand, favourable news is disclosed and unfavourable news is withheld if the signal is more informative about firm-specific factors. Comparative statics show that the sensitivity of the optimal disclosure policy and the probability of disclosure to some key parameters are also dependent on this characteristic of a signal. The empirical implications of our results suggest that when testing hypotheses involving voluntary disclosures, failure to take the above characteristic into account may confound the results. The second essay entitled, "Disclosure and Reputation in Credit Markets", deals with a different aspect of voluntary disclosures. A reputation game is modelled in the absence of credible disclosure. The manager's ability with respect to obtaining predecision information is of interest to the firm's creditors. The manager's future nominal interest charges depend on the creditors' belief about the manager's ability, i.e., on his reputation. Hence, the manager attempts to communicate this ability through sub-optimal production choice and creditors learn about the manager by observing the end of period revenue realization. If credible disclosures are possible the manager may make direct disclosures to communicate his information gathering ability to the creditors. This alternative mechanism avoids the cost of reputation building incurred by selecting a suboptimal project. However, it is shown that if these two mechanisms for reputation acquisition are not "independent", then the possibility of disclosure increases the manager's incentive to select a sub-optimal action.

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