Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 19, 2008 erstellt
Description:
Starting in 1997, the U.S. Securities and Exchange Commission required that some firms disclose information about risks. One format for risk disclosures let firms disclose correlations by allowing firms to report the sensitivity to market risk factors of cash flows related only to financial instruments and derivatives. Prior theoretical accounting research analyzes the benchmark of voluntary disclosures to establish the effects of mandating disclosures of various types, but not disclosures of sensitivities. We propose the first theoretical model that analyzes the consequences of mandating firms to disclose their sensitivity. This model extends previous research on managers' voluntary disclosures of variances of future cash flows and measurement error of disclosures. Specifically, we derive equilibrium prices and stock returns endogenously in a setting where truthful disclosure of the sensitivity is voluntary, that is, the manager may elect to not disclose. We show that in the absence of disclosures about the sensitivities, investors require an additional risk premium. We further show that a manager's decision to disclose or withhold the sensitivity may be affected by other firms' disclosures of sensitivity even when sensitivities are uncorrelated. Finally, we show how voluntary sensitivity disclosures affect firms' cost of capital even in the limiting case with infinitely many firms