Is the Usefulness Approach Useful? Some Reflections on the Utility of Public Information
The market view: If investors prefer firms which deliver reliable and detailed information about their current position and future prospects, then the better the public accounting information provided by a firm, the lower the firm’s capital cost will be. Each firm will thus have a natural incentive to disclose information: there will be no need for regulation that makes disclosure mandatory.
The regulator’s view. The advocates of regulation argue that legislation requiring the disclosure of a certain amount of accounting data in a well defined format is necessary. Otherwise, the self-interest of managers would lead them not to disclose true and fair information, but rather to adopt a marketing approach where managers let the public know what they want them to know and keep secret what they don’t want the public to be aware of.
KeywordsPublic Information Information Level Allocational Efficiency Real Market Financial Analyst
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