Refined Conditions for Fully Revealing Income Disclosure.

Abstract Demski and Sappington (1990) treat income disclosure as a process that conveys fully revealing information, and they establish two results related to this commentary: (1) an income-disclosure procedure is fully revealing if, and only if, the related end-of-period, present-value measures always are invertible in the realized information-structure signals, and (2) strict favorableness is sufficient for fully revealing income disclosure under the true probability measure. This commentary shows that the first result follows from a more interesting necessary and sufficient condition than invertibility. Essentially it shows that an income-disclosure procedure is fully revealing if, and only if, differences in perceptions about the discounted expected values of future cash flows or differences in current cash flows are possible in all periods for all cash flow/signal pairs. In the context of the second result, an alternative, more general, sufficient condition for fully revealing income disclosure under the true probability measure is identified. This outcome is assured if differences in perceptions about the discounted expected values of future-periods cash flows are possible in all periods for all cash flow/signal pairs.