Agency Cost Of Information Disclosure In China

Public information disclosure of listed companies is an important source for stakeholders to understand their company’s financial status, operations, internal management, future planning and other information. The reliability, timeliness, completeness of the information has a direct impact on investors’ decisions, thus stakeholders prefer maximum disclosure of information; however, the disclosure of corporate information does not necessarily benefit for the management of the listed company, and the management does not want to take the initiative for their own interests to maximize the realization of information disclosure. The interest of investors and the company’s management is not entirely consistent, and there exists agency problems. Managerial compensation is the shareholders’ payment to management for their operation in company, and it is the result of bargaining power game between managements and shareholders. Thus the degree of disclosure of information may be one of the factors affecting the bargaining power of the management. If so, the information disclosure must be paid by shareholders at a certain cost, as a consequence, as the degree of disclosure of information enhances, the management compensation will increase.By constructing an agency cost model of information disclosure, this paper explores the existence of such costs. If there is such a cost, it will be quantified. This paper will first summarizes the research on information disclosure and remuneration, and according to that, this paper will select the relevant control variables to ensure the correctness of the model. This paper performs a detailed analysis of the main board market.By analyzing the model result, this paper finds that the agency costs of information disclosure does exist. In the mainboard, when the information disclosure is improved one level, the shareholders should pay 26.19% to 40.12% compensation to the mangers on average, which is really a pretty penny. Besides, there is an interaction between the information disclosure and executive compensation. A better disclosure will enhance executive compensation, and to enhance the executive compensation disclosure will improve information disclosure quality in return.Above all, this paper will provide another way to understand why the high quality of information disclosure cannot be found easily.