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Disclosure, investment and regulation


Östberg, Per Nils Anders (2006). Disclosure, investment and regulation. Journal of Financial Intermediation, 15(3):285-306.

Abstract

This paper provides a framework to analyze voluntary and mandatory disclosure. Since improved disclosure reduces the entrepreneur's ability to extract private benefits, it secures funding for new investments, but also provides existing claimholders with a windfall gain. As a result, the entrepreneur may choose to forgo investment in favor of extracting more private benefits. A mandatory disclosure standard reduces inefficient extraction and increases investment efficiency. Although the optimal standard is higher than the entrepreneur's optimal choice, it can be less than complete in order not to deter investment. The model also shows that better legal shareholder protection goes together with higher disclosure standards and that harmonization of disclosure standards may be detrimental.

Abstract

This paper provides a framework to analyze voluntary and mandatory disclosure. Since improved disclosure reduces the entrepreneur's ability to extract private benefits, it secures funding for new investments, but also provides existing claimholders with a windfall gain. As a result, the entrepreneur may choose to forgo investment in favor of extracting more private benefits. A mandatory disclosure standard reduces inefficient extraction and increases investment efficiency. Although the optimal standard is higher than the entrepreneur's optimal choice, it can be less than complete in order not to deter investment. The model also shows that better legal shareholder protection goes together with higher disclosure standards and that harmonization of disclosure standards may be detrimental.

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Citations

10 citations in Web of Science®
11 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2006
Deposited On:21 Nov 2014 08:02
Last Modified:05 Apr 2016 18:32
Publisher:Elsevier
ISSN:1042-9573
Publisher DOI:https://doi.org/10.1016/j.jfi.2006.01.002
Other Identification Number:merlin-id:4812

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