Author: Zhe JinPublisher:
ISBN:
Category : Disclosure of information
Languages : en
Pages : 404
Book Description
Competition and Voluntary Disclosure of Quality Information
Author: Zhe JinPublisher:
ISBN:
Category : Disclosure of information
Languages : en
Pages : 404
Book Description
The Impacts of Product Market Competition on the Quantity and Quality of Voluntary Disclosures
Author: Li, XiPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
This study examines how firms' voluntary disclosure decisions are influenced by product market competition. Using separate measures to capture different dimensions of competition, I show that competition from potential entrants increases disclosure quantity while competition from existing rivals decreases disclosure quantity. I also find that competition enhances disclosure quality mainly through reducing the optimism in profit forecasts and reducing the pessimism in investment forecasts. Moreover, I find that the above association is less pronounced for industry leaders, consistent with industry leaders facing less competitive pressures than industry followers.
Quality Disclosure and Comparative Advertisement
Author: Yeolyong SungPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We study firms' voluntary disclosure in an oligopoly market for vertically differentiated products, where firms are allowed to advertise a rival's product as well as their own products. When consumers are uncertain of product qualities, Board (2009)1) and Hotz and Xiao (2011)2) show that price competition among firms alleviates firms' incentives to disclose the quality of their own product. Nonetheless, firms still have incentives to distinguish their own products from those of the competitors to attract more consumers. A comparative advertisement is a useful way to distinguish products and thus, a rival's advertisement can lead to a disclosure of a firm's product information. Comparative or negative advertisements are used in many industries and political campaigns. In 2010, for example in the United States, Verizon Wireless compared their service coverage with that of the competitor, AT&T, on the TV commercial and their Web site in order to advertise the 3G network service for mobile phones (See Figure 1). They had a broader service area than AT&T did and used a comparative advertisement to show that their service was superior.3) Through the negative advertisement by Verizon Wireless on the AT&T's service, the information on the AT&T's mobile phone service was revealed even though AT&T did not disclose their nation-wide service coverage in a picture. This is in contrast with the fact that AT&T themselves put the map showing their nation-wide 3G service coverage for iPads on their Web site.4) At that time AT&T was the only service provider for iPads. This paper allows firms to advertise a rival's product. We show that the qualities of all the products in an industry are fully revealed by a high quality firm's comparative advertisement and full revelation is the unique equilibrium outcome. Each firm's advertisement (message) can convey information on either its own product quality or a rival's or both. Differentiating from traditional models that consider advertisement as a signal of product qualities (Nelson, 19745); Schmalensee, 19786); Grossman and Shapiro, 19847); Kihlstrom and Riordan, 19848)), we consider it as a truthful claim about its qualities. In other words, we see the role of advertisement as conveying factual information directly to the consumers. The restriction of firms' messages to truthful claims can be justified by the argument that an untruthful claim, such as an overstatement on their own product or an understatement on their rival's product, could be challenged in a court of law. If the claim was found to be untruthful, the firm that sent the untrue message might have to pay a fine or more, and the true quality would be revealed as the result. In this model, full revelation occurs as the unique equilibrium outcome. If firms do not disclose any information and consumers do not distinguish the qualities among products, then the firms' profits are zero by price competition. By revealing some information and having consumers perceive that the product is differentiated from its rivals', a firm can increase the profit. In the competition between two firms, there exists an equilibrium in which full information on all products is revealed by the firm with a higher quality (henceforth, called a high quality firm) as in the above example of the mobile phone service industry. The high quality firm can increase the profit by advertising the rival's low quality product as negatively as possible because such an advertisement increases its demand by making more consumers switch from the low quality product to the high quality product. Since false claims are not allowed, the negative advertisements reveal the true quality of the rival's product. Meanwhile, the high quality firm reveals the true quality of its own product building grounds for a higher price. Since an advertisement that fully reveals both firms' product qualities is a dominant strategy for the high quality firm, full revelation is the unique outcome. In general, full revelation fails without advertisement on a rival's product. Such revelation, as many studies suggest, increases consumers' welfare, and thus the literature argues in favor of the introduction of mandatory disclosure laws (Fishman and Hagerty, 20039); Board, 2009; Hotz and Xiao, 2011). However, mandatory disclosure laws burden both private and public sectors with an enforcement cost and a deadweight loss. As an alternative to the costly legal solution, the results of this paper suggest that a market can lead to a full revelation with voluntary disclosure if negative advertisement on rivals' products is allowed. As a parallel example, in the domain of politics, negative advertisement exists in the form of negative campaigning. Amid ongoing debate and controversy, recent studies such as Polborn and Yi (2006)10) defend prevailing negative campaigning arguing that consequently revealed information on the candidates empowers the electorate to make more-informed decisions. The rest of the paper is organized as follows. After reviewing the related literature in Section 2, we present an oligopoly model with price competition between two firms in Section 3 and derive the firms' profit functions from the equilibrium pricing rules and the associated demand functions in Section 4. With the profit functions, in Section 5, we analyze the firms' advertisement strategies and show that there exists an equilibrium in which full information is revealed by the high quality firm. Section 6 concludes the findings and discusses extendible issues.
Corporate Competitive Strategy and Voluntary Disclosure
Author: Jidong ZhangPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
The relation between the motivation of voluntary disclosure and the characters of companies is important research topic in accounting research and strategy research. The paper investigates the samples from Chinese capital market during 2004-2006 and concludes some empirical results to verify and support the strategy theory that pre-literatures had document through the analysis of game theory. The findings are that there is no significant relationship between industry competitive information voluntary disclosure and corporate governance and there is no significant relationship between industry competitive information voluntary disclosure and earning quality. As the analysis of strategy theory, there is significant relationship between industry competitive information voluntary disclosure and corporate competitive strategy which integrates with the status of market competitive where the corporate locates. If the corporate locates in growth period of Product Life Cycle (PLC), it is more possible to disclose industry competitive information and this motivation is obvious. The findings provide the empirical evidence of strategy competitive theory. These also implicate that voluntary disclosure is related to the disclosure content, not to corporate characters such as governance and earning quality.
The Effect of Product Market Competition on Corporate Voluntary Disclosure Decisions
Author: Yong-Chul ShinPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
This paper investigates empirically the effect of different types of product market competition on levels of voluntary disclosure of proprietary information in financial markets. Firms, considering a disclosure, trade off attaining financial market valuation-related benefits vs. protecting long-term product market advantage. Based on economic theory, I propose that there are two types of strategic interaction settings relevant to disclosure: Capacity competition drives firms to disclose more; price competition drives them to disclose less. When firms are competing on capacities, firms disclose more information to lower the cost of capital needed for capital investments. In contrast, when firms are competing on prices, they disclose less information because proprietary costs are high and the benefit from any decreased cost of capital is low due to less acute need for additional capital. By estimating the signs of the slope of reaction curves to identify the type of competition facing firms in oligopoly markets, I find that the type of product market competition affects the level of voluntary disclosure over and above what pervious literature has documented as the firm's external financing needs. That is, firms engaged in capacity competition disclose relatively more information than firms engaged in price competition. Further analysis after including as benchmarks firms with no strategic interaction, shows that capacity competition firms disclose more information than no-strategic-interaction firms but that price competition firms do not disclose less information than no-strategic-interaction firms.
Disclosure of Information Under Competition
Author: Jesal ShethPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The theory of voluntary disclosure of information posits that market forces lead senders to disclose information through a process of unravelling. This prediction requires that receivers hold correct beliefs and, in equilibrium, make adverse inferences about non-disclosed information. Previous research finds that receivers do not sufficiently infer non-disclosure as bad news, leading to the failure of complete unravelling. This paper experimentally examines whether competition between senders when receivers strongly prefer disclosed over nondisclosed information increases unravelling. We further examine whether receivers' naivety about non-disclosed information decreases with competition between senders. We find that complete unravelling fails to occur without competition. However, with competition, there is significantly higher unravelling such that it increases receivers' overall welfare. Interestingly, receivers' welfare increases despite no significant difference in their guesses or beliefs about non-disclosed information relative to the treatment without competition. We conclude that competition between senders positively affects disclosure of information and receivers' welfare.
A Note on Quality Disclosure and Competition
Author: Jos JansenPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Competitive pressure is lower in markets where goods are more differentiated. I analyze how a change in the degree of horizontal product differentiation affects the incentives of duopolists to disclose quality information. If disclosure is costly, then a firm discloses high qualities but conceals low qualities in equilibrium. The higher the disclosure cost, the higher the equilibrium threshold below which firms conceal quality information. I show that the effect of product differentiation on quality disclosure depends on the cost of disclosure. For low (high) disclosure costs, a firm discloses more (respectively, less) quality information if goods become more differentiated.
Earnings Quality
Author: Jennifer FrancisPublisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Voluntary Disclosure and the Role of Product Market Competition
Author: Narayanaswamy RamaswamiPublisher:
ISBN:
Category : Competition
Languages : en
Pages : 338
Book Description
Voluntary Quality Disclosure and Market Interaction
Author: Liang GuoPublisher:
ISBN:
Category :
Languages : en
Pages : 28
Book Description
Marketers disclose quality information directly to potential consumers using a variety of communication channels. This study investigates how competition may influence duopoly firms' incentive to voluntarily and truthfully reveal quality information. It is shown that firms in competitive markets reveal less information than a monopoly firm does. In addition, sequential disclosure leads to asymmetric equilibrium disclosure behavior: The disclosure leader discloses unambiguously less information than that in the simultaneous disclosure case, whereas the disclosure follower ex ante reveals less (more) private information than both the disclosure leader and that in the simultaneous disclosure case when the disclosure cost is sufficiently low (high). We also examine the firms' equilibrium ex-ante profits and social welfare. It is demonstrated that there may exist a U-shaped relationship between equilibrium monopoly profits (or social welfare under both monopoly and duopoly) and the disclosure cost. Moreover, in comparison to the simultaneous disclosure case, sequential disclosure can lead to increasingly softened competition, improving both firm profitability and social welfare.