Abstract
We analyze a situation in which an incumbent firm, endowed with private information about a risk factor in its market, can credibly disclose quantitative risk information to the market and, thus, also to its opponents. Favorable information increases the market price of the firm, but it may also induce the opponent to enter the market, which imposes a proprietary cost on the firm. We show that there exist partial-disclosure equilibria with two distinct nondisclosure intervals. If the firm does not disclose, the opponent will not enter the market. We conclude that one reason for the empirically observed lack of quantitative risk disclosure is the fact that firms are required to explain the underlying assumptions and models that they use to measure the risk, which can lead to important competitive disadvantages.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Casson, M.: Entrepreneurship and the theory of the firm, J. Econ. Behav. Organ. 58, 327–348 (2005)
Chwolka, A., Kusemitsch, N.: Auswirkungen einer zunehmenden Regulierung auf die Qualität der Risikoberichterstattung, 2010, FEMM Working Paper No. 15, University of Magdeburg, July (2010)
Darrough, M.N., Stoughton, N.M.: Financial Disclosure Policies in an Entry Game. J. Account. Econ. 12, 219–243 (1990)
Feltham, G.A., Xie, J.Z.: Voluntary financial disclosure in an entry game with continua of types. Contemp. Account. Res. 9, 46–80 (1992)
Newman, P., Sansing, R.: Disclosure Policies with Multiple Users. J. Account. Res. 31, 92–112 (1993)
Suijs, J.: Voluntary Disclosure of Bad News. J. Bus. Finan. Account. 32, 1423–1435 (2005)
Wagenhofer, A.: Voluntary disclosure with a strategic opponent. J. Account. Econ. 12, 341–363 (1990)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Chwolka, A., Kusemitsch, N. (2012). Incentives for Risk Reporting with Potential Market Entrants. In: Klatte, D., Lüthi, HJ., Schmedders, K. (eds) Operations Research Proceedings 2011. Operations Research Proceedings. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-29210-1_88
Download citation
DOI: https://doi.org/10.1007/978-3-642-29210-1_88
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-29209-5
Online ISBN: 978-3-642-29210-1
eBook Packages: Business and EconomicsBusiness and Management (R0)