Stanford University. Accepted by Haresh Sapra. We thank the editor, an anonymous referee, Jeremy Bertomeu, Madhav Rajan, Phil Stocken and seminar participants at the ESMT in Berlin, 2010 EAA meeting, Hebrew University, IDC Herzliya, London Business School, Ohio State University, Tel Aviv University, University of Alberta, University of Texas at Austin, the 2010 Utah Accounting Winter Conference, the Fifth Interdisciplinary Accounting Conference in Copenhagen, and the Fifth Annual Toronto Accounting Research Conference for helpful comments.
Voluntary Disclosure, Manipulation, and Real Effects
Article first published online: 1 JUN 2012
Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2012
Journal of Accounting Research
Volume 50, Issue 5, pages 1141–1177, December 2012
How to Cite
BEYER, A. and GUTTMAN, I. (2012), Voluntary Disclosure, Manipulation, and Real Effects. Journal of Accounting Research, 50: 1141–1177. doi: 10.1111/j.1475-679X.2012.00459.x
- Issue published online: 23 OCT 2012
- Article first published online: 1 JUN 2012
- Accepted manuscript online: 30 APR 2012 03:03AM EST
- Received 2 July 2010; accepted 22 March 2012
We study a model in which managers’ disclosure and investment decisions are both endogenous and managers can manipulate their voluntary reports through (suboptimal) investment, financing, or operating decisions. Managers are privately informed about the value of their firm and have incentives to voluntarily disclose information and manipulate their reports in order to obtain more favorable terms when issuing equity to finance a new profitable investment opportunity. The model shows that treating managers’ disclosure and investment decisions both as endogenous and allowing managers to manipulate their voluntary reports yields qualitatively different predictions from when the disclosure and investment decisions are considered separately and managers cannot engage in manipulation. The model predicts that managers’ disclosure strategy is sometimes characterized by two distinct nondisclosure intervals (contrary to traditional threshold equilibria of voluntary disclosure models) and that managers with intermediate news sometimes forego the new profitable investment opportunity. As such, the paper highlights the importance of considering the interdependencies between firms’ disclosure and investment decisions and provides new empirical predictions.