Management Accounting Section Midyear Meeting

Voluntary Segment Disclosure and Product Market Competition

• In Event: Analytical Models II

Abstract

We derive useful insights to strategic disclosure outcomes, by exploring a voluntary
disclosure setting for a multi-product firm, with a consideration for joint
delegation of production and disclosure under the threat of new market entry.
Using a three-stage Bayesian game, we derive the optimal entry decision of the
potential entrant, the optimal disclosure choice of the incumbent’s CEO, and
the optimal incentive offered by the board to the manager for providing voluntary
segment disclosure. We show that the optimal new entry decision is closely
related to the demand differential in the two products. When the demand for
the different products is similar, then the entrant could enter simultaneously
in more than one market. We also identify the board’s threshold in providing
incentives for promoting high quality disclosure.

Authors

• Ting-Hsuan Wu, The University of Sydney

• Demetris Christodoulou, The University of Sydney