SIFR Research Report Series, Institute for Financial Research
Benjamin E. Hermalin
Information Disclosure and Corporate Governance
() and Michael S. Weisbach
Abstract: In public-policy discussions about corporate disclosure,
more is typically judged better than less. In particular, better disclosure
is seen as a way to reduce the agency problems that plague firms. We show
that this view is incomplete. In particular, our theoretical analysis shows
that increased disclosure is a two-edged sword: More information permits
principals to make better decisions; but it can, itself, generate
additional agency problems and other costs for shareholders, including
increased executive compensation. Consequently, there can exist a point
beyond which additional disclosure decreases firm value. We further show
that larger firms will tend to adopt stricter disclosure rules than smaller
firms, ceteris paribus. Firms with better disclosure will tend, all else
equal, to employ more able management. We show that governance reforms that
have imposed greater disclosure could, in part, explain recent increases in
both CEO compensation and CEO turnover rates.
Keywords: Corporate governance; Corporate disclosure; (follow links to similar papers)
JEL-Codes: D82; D83; G30; L20; M42; (follow links to similar papers)
41 pages, September 21, 2010, Revised June 1, 2011
Please find updated version on http://fisher.osu.edu/fin/faculty/weisbach/wpapers.html
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Full text versions of the paper:
- This paper is forthcoming as:
Hermalin, Benjamin E. and Michael S. Weisbach, 'Information Disclosure and Corporate Governance', Journal of Finance.
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