Is Corporate Disclosure Necessarily Desirable? A Survey

Abstract

This article reviews the recent literature on the consequences of disclosure for listed firms. Though some studies show that disclosure is desirable for shareholders because it reduces the cost of capital, and increases the value created, others provide more mixed results. The conclusion on the collective advantages is even less convincing; it is not at all certain that disclosure can improve the stability of financial markets. To explain these results, it is necessary to invoke the costs and pernicious effects of disclosure. Disclosing information is expensive: because of the communication and audit costs, strategic information given to competitors and because disclosure can increase managers’ suboptimal behavior. But corporate disclosure also generates informational costs, because it is not certain that it improves the information held by third parties. Indeed, a firm can disclose information that is false, manipulated, too complex or too extensive. In this case, disclosure can increase information asymmetry between agents. Finally, disclosure can reduce actors’ incentives to look for information about the firm; it can reduce the knowledge that the market has at its disposal. Disclosure can therefore lead to an illusion of knowledge, increasing the instability of the financial markets instead of reducing it.