On the Disclosure of Half-Truths and the Duty to Update

Management Science · 2022 · 3 citations

• Computer Science
• Political Science
• Accounting

We develop a model of a manager’s equilibrium voluntary disclosure policy to study how that policy changes depending on whether the manager is prohibited from disclosing, or allowed to disclose, a half-truth; we also examine how the disclosure policy changes depending on whether the manager has a duty to update past disclosures. Among our results, we show that if a manager is prohibited from issuing half-truths, the manager discloses a wider array of information than if the manager is allowed to issue half-truths, and investors view the absence of disclosure more skeptically; we also show that imposing a duty to update on the manager does not affect the manager’s initial disclosures, but it results in the manager disclosing uniformly more information over time. This paper was accepted by Brian Bushee, accounting.

Debt and Voluntary Disclosure

The Accounting Review · 2020 · 17 citations

• Business
• Monetary economics
• Finance

ABSTRACT This paper studies equilibrium voluntary disclosures for a company financed with both debt and equity, where the firm's manager is compensated based on a linear combination of the market prices of the firm's equity and enterprise values (i.e., the sum of its values of equity and debt). Such compensation policies span “all equity” contracts, “all debt” contracts, and “all enterprise value” contracts. We show: (1) under both “all equity” and “all debt” contracts, increased debt always leads to reduced voluntary disclosure; (2) under “all enterprise value” contracts, increased debt has no effect on voluntary disclosure; (3) for all contracts that place positive weight on both equity and enterprise values, more debt leads to less (respectively, more) disclosure if the initial debt level is low (respectively, high); (4) increasing the weight on equity prices always induces less disclosure, so: (5) “all equity” contracts minimize disclosures, and “all debt” contracts maximize disclosures.