Information Disclosure Strategy

B. Lev (1992)

Presented by:

Ken Chong

Robyn Fulkerson

Allison Taylor

Terry Woods

Introduction

Voluntary Information Disclosure Limited planning Little attention

Results of Disclosure Study 100 companies surveyed 55 companies with < 4 disclosures Only 16 companies with at least 1

disclosure

Impact of lack of Voluntary Disclosure Generally detrimental Significant and long-lasting Costly Capital market efficiency

Importance of Information Disclosure Provides benefits and incur costs the

same as other corporate activities Warrants careful attention and long-

term planning Information Disclosure Strategy

Empirical Findings Strategy announcements Acquisition announcements New product announcements Managerial earnings forecasts Warnings Dividend decrease Management’s discussion Analysts monitoring Equity carve outs Entry deterrence

Conclusions from Empirical Findings Voluntary disclosure significantly impacts capital

markets stock price & trade volumes also on share volatility, liquidity, shareholder mix,

confidence of suppliers/customers Efficient markets assure quick/proper reaction Deters competitors Use disclosure strategy to manage analyst’s

expectations Despite strict rules much latitude to acceptable legal

& GAAP standards

Who Benefits?

Financial analysts Competitors Sophisticated investor

Managers Stakeholders

Impacts decisions & activities Information gap

Value Creation

Affects outside perceptions Cost of capital/ input prices Terms of trade

Affects information gap – Agency theory Depressed values Low investor certainty Evaluation costs

Direct Value: narrows information gap Indirect Value: enhances corporate activities

Strategic Objectives

Correcting misvaluations Enhancing liquidity Changing shareholder mix Deterring political/regulatory

intervention Gaining competitive advantage

Cost of Disclosure

Direct costs - processing/disseminating info Indirect costs - impact on a company’s

decisions/activities supplier terms competitive position costs litigation costs

Simultaneous and contradictory effects on various stakeholder groups - consider all stakeholders

Summary

Voluntary disclosure can have significant impact in capital markets

View as a corporate activity like production or marketing

Especially important for new technology, small or politically sensitive industries

Disclosure strategy an integral activity if a firm is to realize full value

Insights and Implications

Strategy implications - disclosure strategy + integration

Simultaneous and contradictory effects Disclosure vs. management inability Congruence with Agency/PA theories Implementation - GAAP/Voluntary Impact

Conservatism Prospective Verifiable Commitment

Class Discussion

Questions????