Financial Reporting and Supplemental Voluntary Disclosures


  • We thank the Editor and two anonymous referees for many helpful comments and suggestions. We also appreciate the comments and suggestions we received from Anil Arya, Qi Chen, Maqbool Dada, Christian Dahl, Dick Dietrich, John Fellingham, Frank Gigler, Jon Glover, Rao Kadiyala, Chandra Kanodia, Mike Kirschenheiter, Pierre Liang, Haresh Sapra, Timothy Shields, Philip Stocken, Siew Hong Teoh, Raghu Venugopalan and participants at The Ohio State University Accounting workshop, the 2005 Chicago–Minnesota Accounting Theory Conference, the 2006 American Accounting Association meetings and Anne Beyer (our discussant). Finally, we gratefully acknowledge the financial support provided by the Krannert Graduate School of Management and Purdue University.


A standard result in the voluntary disclosure literature is that when the manager's private information is a signal correlated with the firm's liquidation value, mandatory disclosures substitute for voluntary disclosures. In this paper, we assume that the manager's private information complements the mandatory disclosure and show that the content and likelihood of a voluntary disclosure depend on whether the mandatory reports contain good or bad news. This different information asymmetry produces new, testable implications regarding the probability of and market reaction to voluntary disclosures. We also show that changes in mandatory disclosure regulations can have unintended consequences due to their effects on the manager's willingness to voluntarily provide supplemental disclosures.