Shareholder monitoring and discretionary disclosure☆

https://doi.org/10.1016/j.jacceco.2021.101422Get rights and content
Under a Creative Commons license
open access

Abstract

Theories of delegated monitoring predict that when public disclosure is costly, monitoring by a large investor leads management to supply more private information to that investor, and less public disclosure to other similarly aligned investors who free-ride off the monitor. We test this prediction in the setting where large shareholders contractually bind management to share private information. We find that after the execution of such contracts, firms improve their performance and reduce their public disclosures. Overall, our evidence supports the disclosure prediction of delegated monitoring theories, and is inconsistent with poor-performance and expropriation theories of disclosure.

Keywords

Corporate disclosure
Governance
Liquidity
Shareholder contracts

JEL classification

G30
K22
L14
M40

Cited by (0)

☆

We are grateful for the detailed and insightful comments from Wayne Guay (the editor) and Sugata Roychowdhury (the referee) that substantively changed the paper. We also thank Ray Ball, Phil Berger, Mark Bradshaw, Rich Frankel, Atif Ellahie, Joseph Gerakos, Rachel Hayes, Zach Kaplan, Wayne Landsman (discussant), Russ Lundholm, Marlene Plumlee, Doug Skinner, Phil Stocken, and workshop participants at the CGECRS Webinar, Dartmouth College, the Dopuch Accounting Research Conference, Georgetown University, Rice University, the University of British Columbia, the University of Michigan, the University of Oregon, and the University of Utah.

© 2021 The Author(s). Published by Elsevier B.V.