Disclosure policy choices under regulatory threat

This article shows that firms “voluntarily” increase their disclosures in response to the threat of more stringent disclosure regulations. These disclosures are mostly just sufficient to deter regulation. However, when investment risk is low, both managers and investors might strictly prefer the regulation deterring equilibrium. We further find that in many cases, regulation can only be deterred by asymmetric disclosure behavior of the firms. This suggests that coordination issues and free-riding may be important reasons why self-regulation may fail. The results also indicate the importance of considering political pressure and regulatory threats to explain observed symmetric and asymmetric voluntary disclosure behavior.