Discussion of the Role of the Manager's Human Capital in Discretionary Disclosure

Abstract

Nagar introduces an interesting deterrent to voluntary disclosure by a manager. He assumes that a disclosure of the manager's private information triggers the market to acquire further information and to use the information to reassess the manager's ability. The risk-averse manager views the prospect of information triggering as an avoidable risk, and in equilibrium he discloses private information only if it is more favorable than a threshold. In the paper the triggered information is a signal drawn by nature about the manager's ability, and the manager's payoff is determined simply as the market's updated assessment of the manager's ability. Several questions arose during the conference discussion concerning missing contracting or labor market considerations which might mitigate or even eliminate the manager's incentives not to disclose. In my opinion, certain market mechanisms or contracting arrangements may alleviate, but will not entirely eliminate, the proposed disincentives of the manager to disclose due to, among other things, the firm- or environment-specific nature of managers' abilities and their short tenures. The aspect of the paper I find most interesting is the assumption that disclosure triggers information production by the market. Nagar assumes that the market knows the manager has private information and considers nondisclosure as a conscious choice, rather than an absence of private information. I regard this as a simplified version of a more general economy in which the market is aware only of the average rate of private information arrivals to the manager, and the extent of disclosure is interpreted relative to the expected private information arrival. This more