Abstract
This paper discusses the reaction of a manager to voluntary disclosure and the strategic decisions within social contexts concerning financial disclosure . Extensions of the base model examine the interaction of financial disclosure , investor relations, and managerial incentive to disclose, such as demonstrating a signaling game between a manager and investors for financial disclosure . This paper demonstrates how Rule 10b-5 of the 1934 Securities and Exchange Act fails to induce voluntary disclosure. While there is a link between the way in which companies raise external capital and the information that the companies disclose, the transformed reaction of disclosure is the signal for the company’s financing policy. With the reaction of investors to voluntary disclosure after information is disclosed, this paper analyzes why the disclosure of information has regulated results as noise for investment. The extra requirement for information shifts the positions of investors toward managers concerning the policy of financial disclosure .
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Notes
- 1.
According to Kimball (1993) risk-averse principals who are willing to bear one risk are less willing to bear another risk, even when the two risks are independent. People are approximately risk-neutral when stakes are small (Rabin 2000). If the principal and the agent are both assumed to be risk-averse in this study, then the reaction of rational managers discussed in Sect. 8.3.2 would be congruent and we would not have to relax the assumption of manager type by discussing the possibility of there being more than just a dichotomy under the Rule of Disclosure.
- 2.
Cheap talk is the situation in which information is shared through ordinary, informal talk. Joseph and Rabin (1996) presented this situation and argued that cheap talk can and often do matter, but it does not generally lead to efficiency. Chen et al. (2008) introduced that in the standard model of cheap-talk communication, an informed Sender sends a message to an uninformed Receiver. The Receiver responds to the message by making a decision, that is, payoff relevant to both players. Talk is cheap, because the payoffs of the players do not depend directly on the Sender’s message.
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Chen, CW. (2018). A Signaling Game Between a Manager and Investors for Financial Disclosure. In: Gal, G., Akisik, O., Wooldridge, W. (eds) Sustainability and Social Responsibility: Regulation and Reporting. Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application. Springer, Singapore. https://doi.org/10.1007/978-981-10-4502-8_8
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