ORCID

Jeremy Bertomeu, https://orcid.org/0000-0001-6746-5767

Language

English (en)

Publication Date

11-24-2017

Abstract

This article examines the nature of disclosure standards, under the assumption that (i) stan- dards preferred by more firms are collectively chosen and (ii) privately informed firms prefer standards that increase market perceptions about the value of their assets. A standard is stable if it is preferred by a large enough super-majority of firms over any other standards. Absent any restriction on possible standards, only unanimity would make a standard stable. By contrast, when requiring standards that classify news from best to worst, there is at most a single stable standard, and it must be full disclosure. For a large class of distributions over valuations, the required super-majority is about two thirds, close to the majority required in many standard- setting boards. Value distributions with heavy tails, such as news that contains extreme risks, require higher super-majorities to be stable. These insights are robust to certain settings in which the information is used in decision-making.

Document Type

Working Paper

Author's Department

Accounting

Author's School

Olin Business School

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