Accounting Papers

Document Type

Journal Article

Date of this Version

4-2011

Publication Source

OR Spectrum

Volume

33

Issue

2

Start Page

333

Last Page

358

DOI

10.1007/s00291-010-0215-2

Abstract

In light of IASB’s statement to drop stewardship as a separate objective of financial accounting and the ongoing debate about increasing the disclosure of soft information, we investigate the economic consequences of publicly reported soft information from a stewardship perspective. In an LEN model we include market price as a performance measure and investigate whether the principal benefits from disclosing additional information. While the principal can only use contractible performance measures in the contract with the agent, capital market participants can only use disclosed information when pricing firm value. We find that the disclosure of information can decrease the principal’s expected net profit. This result follows from either a noisier or a less congruent market price as a consequence of disclosing additional information. Thus, we present a rationale for partial disclosure in the absence of proprietary costs or the uncertainty of information endowment.

Keywords

managerial incentives, stock-based compensation, financial reporting, disclosure

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Date Posted: 27 November 2017