Endogenizing Discretion in Disclosure.
By Anil Arya, Ram Ramanan
Management Science | June 2023
DOI
doi.org/10.1287/mnsc.2022.4505
Citation
Arya, Anil., Ramanan, Ram. Endogenizing Discretion in Disclosure. Management Science doi.org/10.1287/mnsc.2022.4505.
Copyright
Management Science, 2023
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Abstract
A firm’s publicly available information reflects ex ante committed information releases and ex post discretionary disclosures. In a setting wherein a firm’s CEO is concerned with stock market valuation and confrontations with the employee union, this paper endogenizes when the CEO retains ex post disclosure discretion and when the CEO curtails discretion, opting instead to ex ante commit to not gathering information or publicly disclosing information. The underlying economic forces entail a trade-off between the time-inconsistency problem (the CEO’s ex post preferences can diverge from the CEO’s ex ante goals) and how silence (absence of information) under the ex ante and ex post paths is valued differentially by the union. In effect, silence under different systems “speaks” differently, and this influences both the labor union’s incentives to engage in bargaining with the firm and the stock market’s pricing of the firm’s equity.

Ram Ramanan is an Associate Professor of Accounting at the Indian School of Business (ISB). Before joining ISB, he served as a faculty member at the University of California, Davis and at SUNY, Binghamton.

Professor Ramanan’s research focuses on the role of accounting in management decisions. Specifically, he examines the incentive effects of financial reports and disclosures on various managerial decisions both inside an organisation and within supply chains. His work has been published in leading academic journals, including The Accounting Review, Journal of Accounting and Economics, The Review of Accounting Studies, Contemporary Accounting Research, Management Science, and Production and Operations Management.

At ISB Professor Ramanan teaches the core Managerial Accounting course and the elective in Strategic Performance Management.

Professor Ramanan holds a PhD in Accounting from the Kellogg School of Management, Northwestern University, and an MBA from the Indian Institute of Management, Bangalore. He is also a Chartered Accountant.

Nv Ramanan
Ram Ramanan