Context-Based Disclosure Incentives

Ebert and Simons model strategic voluntary disclosure behavior. They study this phenomenon in a variety of contexts, where institutional characteristics (e.g., the regulatory environment, features of financial information, enforcement agencies, the interplay of mandatory and voluntary disclosures, or situation-specific objectives of the disclosing firms) form the contexts. The work of A06 differs from prior theoretical work in this field by incorporating the institutional factors mentioned above. Its findings will be instrumental in predicting financial reporting disclosure behavior which shapes corporate transparency.

  • Research Question

    How do context-dependent incentives affect the disclosure behavior of firms, and how does the resulting disclosure affect transparency and subsequent stakeholder decisions?

  • Motivation

    Managing transparency through successful disclosure, i.e., the dissemination of private entity-
    related information to a larger audience, is an important tool for firms and other organizations in the pursuit of their business objectives. In particular, disclosure has the potential to reduce information asymmetries between the disclosing party and its stakeholders. It allows the disclosing party to distinguish themselves positively from other organizations and the latter to better assess the value of their respective stakes in the organization. Currently, we know little about contexts other than that of firms competing for scarce capital. To enhance our understanding of disclosure decisions this project focuses on the analysis of contexts hitherto neglected in the literature.

  • Research Program

    We concentrate on distinguishing disclosure contexts (i) dominated by incentives to promote coordination of economic agents, and (ii) dominated by incentives to affect the allocation of economic resources. In particular, we will study how firms or other organizations would design disclosure rules if their main concern was potential miscoordination of stakeholders, for example, in the form of premature termination of loans by a company’s lenders, as opposed to situations where the main concern was the acquisition of resources, for example, the acquisition of new funds on the capital market. Our analyses are aimed towards understanding how disclosure strategies and policies are formed by and interact with disclosure context.

  • Contribution

    Our results will help to improve the generalizability of results from disclosure research by identifying disclosure contexts based on the disclosure incentives they imply. A comprehensive understanding of disclosure incentives will help to formulate expectations about the effects of disclosure regulation, and also help understand observable disclosure patterns.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.