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    Information disclosure quality: correlation versus precision

    253107.pdf (958.1Kb)
    Access Status
    Open access
    Authors
    Hu, Wei
    Cheung, Adrian
    Date
    2017
    Type
    Journal Article
    
    Metadata
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    Citation
    Hu, W. and Cheung, A. 2017. Information disclosure quality: correlation versus precision. Accounting & Finance. 59 (2): pp. 1033-1053.
    Source Title
    Accounting & Finance
    DOI
    10.1111/acfi.12282
    School
    Department of Finance and Banking
    URI
    http://hdl.handle.net/20.500.11937/54701
    Collection
    • Curtin Research Publications
    Abstract

    We investigate how a multidimensional disclosure quality (i.e., correlation and precision) determines an optimal information disclosure strategy. We find that, for an infinitely lived, unlevered firm with market perfection, a truth-telling disclosure is optimal at increasing the expected firm value. However, for a finitely lived, levered firm in the presence of market imperfections (e.g., bankruptcy cost), the optimal disclosure quality depends negatively on the level of imperfections. Once we consider the agency problem, such dependence can become positive, thereby highlighting the importance of a proper managerial-incentive scheme to align the information disclosure interests of managers and shareholders.

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