Motives for disclosure and non-disclosure: a framework and review of the evidence

Abstract We develop und utilise a theoretical framework for the purpose of summarising the existing empirical work in the voluntary disclosure area. This theoretical framework posits that the primary goal of voluntary disclosure is reduction of information asymmetry (between managers and investors) and thereby cost of capital. We start with a basic or frictionless market where firms choose to disclose all news except worst possible outcomes. The literature supporting this basic economic setting is then discussed. The bulk of our review discusses results that describe disclosure outcomes when frictions do exist. We organise the empirical findings around three categories of frictions: management a) does not know of any information to disclose, b) can not tell information without incurring a cost, or c) does not care about their firm's current stock price.