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Media type:
E-Article
Title:
Discretionary Aggregation
Contributor:
Ebert, Michael;
Simons, Dirk;
Stecher, Jack D.
imprint:
American Accounting Association, 2017
Published in:The Accounting Review
Language:
English
DOI:
10.2308/accr-51434
ISSN:
1558-7967;
0001-4826
Origination:
Footnote:
Description:
<jats:title>ABSTRACT</jats:title><jats:p>We study a disclosure decision for a firm's manager with many sources of private information. The presence of multiple numerical signals provides the manager with an opportunity to hide information via aggregation, presenting net amounts in order to show information in its best light. We show that this ability to aggregate fundamentally changes the nature of voluntary disclosure, due to the market's inability to verify that a report is free of strategic aggregation. We find that, in equilibrium, the manager fully discloses if and only if the manager's private information makes the firm look sufficiently weak. By separating bad news from good news, a disaggregate report informs the market of as much offsetting news as possible, revealing how close the news is to a neutral benchmark. The result is, therefore, pooling at the top and separation at the bottom, the opposite of what transpires with a single news source.</jats:p><jats:p>JEL Classifications: M41; D82; D83.</jats:p>