Research On The Impact Of Product Market Competition Level On Enterprise Voluntary Information Disclosure

Inefficient capital market,inadequate willingness of voluntary information disclosure,poor disclosure quality,and lack of information transparency trouble Chinese capital market and the financial constrained listed companies have limited channels to raise capital and have to pay more to exchange external investment from outside investors.Existing studies show that increasing tension of competition drives firms to disclose more information to receive attention from outside investors for the purpose of enhancing stock liquidity,reducing cost of capital and promoting themselves with increase of the enterprise value.As one of the most important external governance mechanism,product market competition could influence a firm’s decision of information disclosure and has been explored by a large amount of theoretical and empirical literature,but a unified conclusion regarding links between competition and disclosure is still not drawn in different works.Recent empirical studies show that two reasons lead this contradiction: Firstly,the measurement of competition in empirical research may not consistent with the implication of competition introduced in existing theoretical works.Secondly,quantity of voluntary disclosure and quality(precision)of voluntary disclosure should be treated separately when the focus of a research is the relationship between level of competition and the decision of voluntary disclosure.Inspired by these ideas,we try to integrate product market settings from theory of industry organization and the financial decision of voluntary disclosure into a whole framework,together with a clear definition of the level of competition,and explore the causal correlations between tension of competition and quantity of disclosure,it is expected that theoretical conclusions worked out in this thesis will meet empirical findings in prior studies.Main theory instruments in this thesis include information economics,game theory,contract theory and econometrics.Inspired by prior wisdoms attribute to scholars home and abroad,our study is carried out under the settings of Chinese stock market and the thesis is organized as follows: Chapter 1 is the introduction and the background of the study,contributions to the literature,main ideas,technology roadmap,framework of the whole thesis and innovations are also included.Chapter 2 reviews prior literature associated with our works,starts with“unraveling result”and its follow-up studies,then the incentives and disincentives of voluntary disclosure and the relationships between voluntary disclosure and mandatory disclosure,then a review of those works integrate theories of competition and theories of information disclosure,it ends with the review of studies carried out by domestic scholars and a remark on all the reviewed works.Chapter 3 introduces the differentiated Cournot duopoly and Bertrand duopoly models and the methods that works out the equilibrium solves.The methods are then applied to investigate the informed firm’s optimal product market strategy and its optimal decision of voluntary disclosure given the assumption that the cost of disclosing is greater than zero.After that,the relationship between the tension of competition,measured by substitutability of outputs in the case of Cournot duopoly and a similar parameter in case of Bertrand duopoly,and the optimal quantity of disclosure is examined in the last part of this chapter.Chapter 4 and chapter 5 elaborate on main arguments in chapter 3and check if they will hold in a more general context compared to the settings specified in chapter 3.Chapter 6 shows empirical evidence links to conclusions drawn in previous chapters with management earnings forecast data from listed companies.Chapter7 ends up with a conclusion of the thesis and a prospect of future research.The main conclusions show that the informed firm will not disclose all its private information just like the ”unraveling result” has shown,instead,only part of the ”good”information will be published to the market according to the optimal strategy.Specifically,the quantity of voluntary disclosure is negative associated with the level of the competition.These conclusions meet prior empirical studies well.Main innovations in this thesis are:(1)In our models,quantity of disclosure is separated from the quality of disclosure and is analyzed as an individual dimension,the type of the informed sender is specified as one firm possesses private information about uncertain market demand or marginal cost,given these assumptions,the optimal decision of quantity of voluntary disclosure is resolved under the settings of differentiated Cournot duopoly and Bertrand duopoly following the rule of “cost-benefit comparison”,the causal relationship between product market concerns and the decision of disclosure is explored and an indirect evidence of the existence of proprietary cost is proposed.(2)Several assumptions introduced in “unraveling result”is relaxed and then the relationship between level of competition and the optimal quantity of disclosure is checked repeatedly and the main conclusions hold under all relaxed settings.(3)A contract designed to lead the manager of the informed firm discloses its true revenue is worked out and,possible drawbacks emerges while the assumption that the informed firm may not tell the outside investors the real revenue truthfully is then plausible.the element of“moral hazard” is also introduced into the model and makes the conclusion more effectively.(4)A new explanation is provided for the hypothesis “just only one of the firms is informed by uncertain information”employed in chapter 3 from the perspective of industrial policy,the new explanation is formulated from the viewpoint of whole industry rather than that of the informed firm itself;Our findings corroborate the theoretical basis of mandatory disclosure regulations.Firstly,policy makers and regulators are obliged to require the listed company to reveal the information if the decision of revelation is useful to the promotion of social welfare when a firm’s optimal strategy is non-disclosure.Secondly,besides existing official medias or platforms such as newspapers and annual financial reports,firms should be granted by the authorities and could disclose their information in a more flexible way.More alternatives of publishing channels usually are associated with less cost of disclosing and consequently more shared information to other rivals and stakeholders give the quantity of disclosing maintains at least the same level.Thirdly,according to our findings,the willingness of voluntary disclosure varies in industries as the tension of competition in one industry is different from the others,this causal inference highlights calls for the revisions of the laws upon which the listed companies’ acts of promulgation are guided and the information obligors can act in accordance with the laws issued for a specified industry.Fourthly,our results provide a theoretical explanation for existing empirical works,and also suggest that the way empirical works deal with the measure of voluntary disclosure quality should vary with the focus of study.Specifically,when the focus is about economics consequences such as capital cost,quality of disclosure can be represented by a composition variable which is a function of quantity and precision of disclosure;when the focus is decision of disclosure itself,quantity and precision should be analyzed separately and the tense of competition should be controlled in the regression equation.