Advertisement

Disclosure of Private Information by an Undiversified Owner

  • Peter O. Christensen
  • Gerald A. Feltham
Part of the Springer Series in Accounting Scholarship book series (KLAS, volume 1)

Abstract

In Chapter 7 we consider the impact of public information in an equity market under pure exchange. The firms’ managers are ignored since their production decisions are assumed to be fixed, and they are assumed to play no role in determining the information publicly reported to investors. Investors, on the other hand, trade claims to implement their consumption plans and those trades, as well as the market prices of the traded claims, are endogenously determined. The public information system is exogenously specified, and the system specified may influence the investors’ consumption plans. However, a key result from Chapter 7 is that an anticipated change in the public information system has no impact on the investors’ consumption plans (and, hence, their expected utility) if they have homogeneous beliefs, time-additive preferences, and insurable consumption endowments. This result holds even though the trades used to implement the consumption plans, and the market prices, may be influenced by the information system.

Keywords

Reporting System Market Risk Indifference Curve Market Portfolio Private Signal 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Akerlof, G. (1970) “The Market for Lemons: Qualitative Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84, 488–500.CrossRefGoogle Scholar
  2. Banks, J. and J. Sobel. (1987) “Equilibrium Selection in Signaling Games,” Econometrica 55, 647–661.CrossRefGoogle Scholar
  3. Cho, I., and D. Kreps. (1987) “Signaling Games and Stable Equilibria,” Quarterly Journal of Economics 102, 179–221.CrossRefGoogle Scholar
  4. Cho, I. and J. Sobel. (1990) “Strategic Stability and Uniqueness in Signaling Games,” Journal of Economic Theory 50, 381–413.CrossRefGoogle Scholar
  5. Christensen, P. O., G. A. Feltham, and M. G. H. Wu. (2002) ““Cost of Capital” in Residual Income for Performance Evaluation,” The Accounting Review 77, 1–23CrossRefGoogle Scholar
  6. Clarkson, P., and D. Simunic. (1994) “The Association Between Audit Quality, Retained Ownership, and Firm Specific Risk in U.S. vs. Canadian Markets,” Journal of Accounting and Economics 17, 207–228.CrossRefGoogle Scholar
  7. Datar, S., G. Feltham, and J. Hughes. (1991) “The Role of Audits and Audit Quality in Valuing New Issues,” Journal of Accounting and Economics 14, 2–49.CrossRefGoogle Scholar
  8. Dye, R. A. (1985) “Disclosure of Nonproprietary Information,” Journal of Accounting Research 23, 123–145.CrossRefGoogle Scholar
  9. Feltham, G., and J. Hughes. (1988) “Communication of Private Information in Capital Markets: Contingent Contracts and Verified Reports, Economic Analysis of Information and Contracts, G. A. Feltham, A. H. Amershi, and W. T. Ziemba (editors). Boston: Kluwer Publishers, 271–317.CrossRefGoogle Scholar
  10. Feltham, G., J. Hughes, and D. Simunic. (1991) “Empirical Assessment of the Impact of Auditor Quality on the Valuation of New Issues,” Journal of Accounting and Economics 14, 375–399.CrossRefGoogle Scholar
  11. Fudenberg, D., and J. Tirole. (1991) Game Theory, Cambridge, Massachusetts: MIT Press.Google Scholar
  12. Grinblatt, M., and C. Y. Hwang. (1989) “Signaling and the Pricing of New Issues,” Journal of Finance 44, 393–420.CrossRefGoogle Scholar
  13. Grossman, S. J., and O. D. Hart. (1983) “An Analysis of the Principal-Agent Problem,” Econometrica 51, 7–45.CrossRefGoogle Scholar
  14. Harsanyi, J. (1967–68) “Games with Incomplete Information Played by Bayesian Players,” Management Science 14: 159–182, 320–334, 486–502.CrossRefGoogle Scholar
  15. Hughes, P. (1986) “Signaling by Direct Disclosure Under Asymmetric Information,” Journal of Accounting and Economics 8, 119–142.CrossRefGoogle Scholar
  16. Kohlberg, E., and J.-F. Mertens. (1986) “On the Strategic Stability of Equilibria,” Econometrica 54, 1003–1038.CrossRefGoogle Scholar
  17. Kreps, D., and R. Wilson. (1982) “Sequential Equilibrium,” Econometrica 50, 863–894.CrossRefGoogle Scholar
  18. Leland, H., and D. Pyle. (1977) “Informational Asymmetries, Financial Structure, and Financial Intermediation,” Journal of Finance 32, 371–387.CrossRefGoogle Scholar
  19. Mayers, D. (1972) “Nonmarketable Assets and Capital Market Equilibrium Under Uncertainty,” Studies in the Theory of Capital Markets, edited by M. Jensen. New York: Praeger, 223–248.Google Scholar
  20. Titman, S., and B. Trueman. (1986) “Information Quality and the Valuation of New Issues,” Journal of Accounting and Economics 8, 159–172.CrossRefGoogle Scholar
  21. Verrecchia, R. E. (1983) “Discretionary Disclosure,” Journal of Accounting and Economics 5, 179–194.CrossRefGoogle Scholar
  22. van Damme, E. (1987) Stability and Perfection of Nash Equilibria, Berlin: Springer-Verlag.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2003

Authors and Affiliations

  • Peter O. Christensen
    • 1
  • Gerald A. Feltham
    • 2
  1. 1.University of Southern Denmark-OdenseDenmark
  2. 2.The University of British ColumbiaCanada

Personalised recommendations