Emerging From the Shadows: Consequences of Position Disclosure in Corporate Bankruptcy

Using hand‐collected data on the level of pension‐related mandatory disclosures required by International Accounting Standard 19Employee Benefits, we test whether compliance levels with these disclosures convey information that affects firms’ access to the public instead of the private debt market, as well as the cost of their new debt issues. We document a higher tendency to access the public debt market for firms with higher levels of pension‐related disclosure. Furthermore, we find that firms with higher levels of pension‐related disclosure enjoy a lower cost in terms of issuance of public debt, but not a lower cost for private debt issues. Thus, the benefits of disclosure in reducing information risk are only realisable when creditors rely heavily on financial statements in their decision making, due to the limited access to private information. Additional tests reveal that high compliance levels effectively mitigate the negative effect of pension deficits on the cost of public debt. These findings provide novel evidence in the extant literature on the role of mandatory (and, in particular, pension‐related) disclosures on firms’ debt financing. They also have important policy implications.

In two experiments, we demonstrate that the communication medium of voluntary disclosures can influence investors’ information search decisions, which can affect their attention to mandatory disclosures. In an information search setting relating to an investor relations website, our experiments manipulate the format of voluntary disclosure (text or video) and the valence of the information (positive or negative) contained in mandatory disclosures. Our results indicate that investors are more likely to search for voluntary disclosures when they are in a video format. A significant interaction emerges where the news valence in mandatory disclosures is less influential on investors’ judgments when voluntary disclosures employ a video format compared with a text format. This demonstrates that the communication medium of voluntary disclosures can influence investors’ attention to and their processing of mandatory disclosures. Our study contributes to the literature on financial disclosure, disclosure characteristics, and investor behavior. Data Availability: Data are available from the authors upon request.

SYNOPSIS Mandatory existence disclosure rules require an organization to disclose a policy's existence, but not its content. We examine policy adoption frequencies in the year immediately after the IRS required mandatory existence disclosure by nonprofits of various governance policies. We also examine adoption frequencies in the year of the subsequent change from mandatory existence disclosure to a disclose-and-explain regime that required supplemental disclosures about the content and implementation of conflict of interest policies. Our results suggest that in areas where there is unclear regulatory authority, mandatory existence disclosure is an effective and low cost regulatory device for encouraging the adoption of policies desired by regulators, provided those policies are cost-effective for regulated firms to implement. In addition, we find that disclose-and-explain regulatory regimes provide stronger incentives for policy adoption than do mandatory existence disclosure regimes and also discourage “check the box” behavior. Future research should examine the impact of mandatory existence disclosure rules in the year that the regulation is implemented. Data Availability: Data are available from sources cited in the text.

Numerous rules mandate the disclosure of information. This article analyzes why such rules are enacted. Specifically, 1) why wouldn't firms voluntarily disclose their private information; and 2) given that voluntary disclosure would not be forthcoming, who has the incentive to lobby for mandatory disclosure rules? Previous analyses of disclosure assume that all customers understand the disclosures that can be made. A key result in these analyses is that there is no role for mandatory disclosure. Either voluntary disclosure is forthcoming or if it is not, no one is better off with mandatory disclosure. We analyze a market in which not all customers understand the disclosures that can be made. We show that if the fraction of customers who would understand a firm's disclosure is too low, then voluntary disclosure may not be forthcoming. In this case, mandatory disclosure benefits some (possibly all) customers and may also benefit firms. Thus we identify a motive for someone to lobby for such rules. Our results suggest that we should find mandatory disclosure rules with regard to information that is relatively difficult to understand.

SUMMARY We investigate the association between mandated fee disclosures and structural changes in the determinants of nonaudit services (NAS). The Securities and Exchange Commission (SEC) underscored the importance of understanding the impact of disclosures when the Auditor Independence Rules of 2000 explicitly relied on market responses to discipline NAS purchases. In contrast, the Sarbanes-Oxley Act of 2002 (SOX) relied upon prohibitions of NAS. Our findings suggest that market-based approaches were functioning prior to SOX prohibitions. We find that after the SEC mandated fee disclosures, NAS purchases become negatively associated with firms seeking financing and positively associated with managerial ownership. We also document a significantly smaller propensity for NAS purchases among larger firms, compared to a nondisclosure environment. Last, we find that mandated disclosures significantly increase the negative association between NAS purchases and effective audit committees. Collectively, our findings are consistent with mandated disclosures increasing agency cost incentives for limiting NAS purchases. Data Availability: The data are available from public sources.

FsQCA in corporate bankruptcy research. An innovative approach in food industry

We examine the commitment effect provided by mandatory disclosure and the information effect of voluntary disclosure on market illiquidity by exploring a regulatory change that allows smaller reporting companies to reduce the disclosure of certain information in their SEC filings. This regime change allows us to separate the commitment effect provided by mandatory disclosure from the information effect of voluntary disclosure. We find that firms that are eligible to reduce their disclosure, but voluntarily maintain their disclosure level, experience an increase in market illiquidity. We also find that the increase in illiquidity is more pronounced for firms with higher agency costs. These findings suggest that mandatory disclosure serves as a credible commitment mechanism and that losing such commitment by disclosure deregulation is costly in the absence of a loss of information. Our study suggests that while voluntary disclosure is effective in reducing information asymmetry, it cannot replace mandatory disclosure in addressing information problems. Data Availability: Data are available from sources identified in the text.

Using hand-collected data on the level of pension-related mandatory disclosures required by International Accounting Standard 19 Employee Benefits, we test whether compliance levels with these disclosures convey information that affects firms’ access to the public instead of the private debt market, as well as the cost of their new debt issues. We document a higher tendency to access the public debt market for firms with higher levels of pension-related disclosure. Furthermore, we find that firms with higher levels of pension-related disclosure enjoy a lower cost in terms of issuance of public debt, but not a lower cost for private debt issues. Thus, the benefits of disclosure in reducing information risk are only realizable when creditors rely heavily on financial statements in their decision making, due to the limited access to private information. Additional tests reveal that high compliance levels effectively mitigate the negative effect of pension deficits on the cost of public debt. These findings provide novel evidence in the extant literature on the role of mandatory (and, in particular, pension-related) disclosures on firms’ debt financing. They also have important policy implications.

This paper studies whether and how mandatory nonfinancial disclosure affects firms' real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers' human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers' human rights performance improves following the regulation. The effects are stronger when firms face greater pressure from non-governmental organizations (NGOs) and socially conscious shareholders, when customers have greater incentives to use the newly disclosed information, and when the regulation leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms' real decisions through market mechanisms and that stakeholder responses play a key role. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; G18; G38; J80; K22; K31; K38; L23; M41; M48.

Data breach disclosure laws are state-level disclosure mandates intended to protect individuals from the consequences of identity theft. However, we argue that the laws help reduce shareholder risk by encouraging managers to take real actions to reduce firms’ exposure to cyber risk. Consistent with this argument, we find an on-average decrease in shareholder risk, proxied by cost of equity, after the staggered passage of these laws. We also find the effect is attenuated for firms that already took real actions to manage cyber risk before the laws. Further, after these laws, firms are more likely to increase cybersecurity investments and have a cybersecurity officer. Finally, we observe positive abnormal returns on key dates related to the passage of these laws. Our collective evidence suggests that consumer protection disclosure mandates can benefit shareholders and, specifically, that regulators can use disclosure mandates to incentivize managers to reduce firms’ exposure to cyber risk. Data Availability: All data used in this study are publicly available. JEL Classifications: G120; G340.

ABSTRACTWe identify a setting in which firms are required to disclose discounted cash flow (DCF) estimates relating to the value of their primary assets. ASC 932 (formerly SFAS No. 69) has mandated DCF disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a hand-collected sample of oil and gas royalty trusts, we find that (1) the mandatory DCF disclosures are incrementally value-relevant over historical cost accounting variables, (2) investors misprice royalty trust units because they underweight the disclosed DCF estimates when forecasting future distributions, and (3) media articles bringing attention to discrepancies between price and the disclosed DCF estimates are significant stock price catalysts. While our evidence indicates that mandatory DCF disclosures can be incrementally useful for security valuation, it also indicates that investors may overlook such information, potentially due to lack of attention and accounting expertise.Data Availability: Data are publicly available from sources indicated in the text.

Subordination of Shareholder Claims in Bankruptcy of Corporations

The costs and benefits of frequent mutual fund portfolio disclosure have been a strong subject for debate. This study investigates both the determinants and potential effects of portfolio disclosure frequency by comparing funds providing voluntary quarterly disclosure to funds providing only mandatory semiannual disclosure. We find that funds with higher turnover, higher expense ratios, and higher likelihood of committing fraud, tend to disclose their holdings less frequently. These characteristics are likely proxies for a fund's informational advantage and/or agency problems. To differentiate between the information effect (i.e. the potential costs of frequent disclosure are higher for funds with informational advantage) and the agency effect (i.e. the potential benefits of frequent disclosure to investors are higher for funds with agency problems), we examine the relation between disclosure frequency and future fund performance conditioned upon fund investment skills. We use past performance as a proxy for fund investment skills. We expect the information effect to outweigh the agency effect for skilled funds and vice versa for unskilled funds. Our findings show a significant asymmetric relation between disclosure frequency and future fund performance for past winners and losers. Consistent with the information effect, past winners who disclose less frequently outperform past winners who disclose more frequently. Consistent with the agency effect, past losers who disclose less frequently underperform past losers who disclose more frequently. These findings are robust to various performance measures. Finally, we analyze the relation between disclosure frequency and fund new money to examine whether investors reward frequent disclosure. Controlling for other fund characteristics, we find higher new money growth for funds providing more frequent disclosure among poorly performing funds.

Mandatory disclosure and financial contagion

Voluntary disclosure of information is an indirect mechanism through which International Financial Reporting Standards (IFRS) generate benefits for capital markets. Managers typically employ voluntary disclosure as a substitute for mandatory reporting, thereby conveying confidential company performance information to investors. The aim of this study is to present a comprehensive disclosure model for Iranian commercial insurance companies, focusing on IFRS and utilizing the multi-grounded theory approach. The first step involves formulating research questions based on the dimensions of grounded theory. In the second step, the researcher systematically reviews published articles in reputable domestic and international scientific journals to identify credible and valid documents within an appropriate time frame. Initially, related keywords—both individually and in combination—were examined in Persian and English for the period 2013 to 2024, and for English-language articles from 1980 to 2024. As a result, 27 relevant articles were identified. Since data collection in the grounded theory approach is based on theoretical sampling, in this study, data were synthesized through meta-combination, followed by in-depth interviews. Subsequently, using grounded theory and integrating it through the multi-grounded approach, a comprehensive model for identifying the disclosure framework was developed. Reporting and information disclosure are the most critical tools companies use to communicate with shareholders. When information disclosure is mandated by a regulatory or legislative authority, it is referred to as mandatory disclosure. In contrast, if the disclosure is not influenced by specific regulations and is conducted voluntarily by the company, it is considered voluntary disclosure. The voluntary disclosure theory posits that managers will disclose company information under their control if the benefits of such disclosure outweigh the associated costs.