Abstract

This study investigates the determinants of companies’ voluntary information disclosure. Employing a large and unique dataset on the companies’ own earnings forecasts and their frequencies, we conducted an empirical analysis of the effects of a firm’s ownership, board, and capital structures on information disclosure. Our finding is consistent with the hypothesis that the custom of cross-holding among companies strengthens entrenchment by managers. We also find that bank directors force managers to disclose information more frequently. In addition, our results show the borrowing ratio is positively associated with information frequency, suggesting that the manager is likely to reveal more when his or her firm borrows money from financial institutions. However, additional borrowings beyond the minimum level of effective borrowings decrease the management’s disclosing incentive.

Introduction

The corporate governance literature has discussed many mechanisms for resolving the fundamental issue: the agency problem. Perhaps the most pervasive and important factor causing the agency problem between a manager and an investor is the informational asymmetries between them. If managers who are better informed about their future prospects have divergent incentives with their investors, they may expropriate investors’ benefits for their private objectives.

2007.02

PDF File