disclose information voluntarily and can be of influence on the timing of the (voluntary) disclosures (Aboody & Kasznik, 2000). Litigation: the threat of shareholder litigation can have opposing effects on the disclosure policy of the firms. Legal actions for example for untimely or inadequate disclosures can encourage firms to disclose more voluntary information in order to avoid this. On the other hand, particularly forecasting information coming from managers might be negatively influenced if there is a climate where litigation is more commonplace. If managers believe that the legal system penalizes forward-looking information that is presented and made in good faith, they will be more reluctant to disclose this kind of information; Proprietary costs: firms have incentives not to disclose information that will reduce their competitive advantage, even if these (voluntary) disclosures reduce the cost of capital as stated before. This depends on the nature of the competition. Examples are threats of entry, existing competitors etc. Verrecchia (1983) states that the incentive to disclose information is a decreasing function of the potential proprietary costs attached to a disclosure and an increasing function of the favorableness of the news in a disclosure. However, there has been little evidence that supports the propriety costs hypothesis. Watts (1986) extended the propriety costs hypothesis by including other potential externalities from information disclosure such as potential political costs by disclosing information and contracting costs which may in turn affect voluntary disclosure. Political cost can occur when companies put themselves in the spotlight. For example, high profit firms can attract media and consumer attention, which in turn could lead to higher taxes and/or other regulation; Management talent signaling: managers are believed to strive to a high market value of the firm. In order to achieve this, they have to attract and report to investors. Managers, by voluntarily disclosing information, can reveal their type in terms of their ability (Trueman, 1986). This influences the investors` perception of the managers and his ability to anticipate to future change, which will lead to a higher market value. However, research supporting or refuting this hypothesis has not been found yet.
disclose information voluntarily and can be of influence on the timing of the (voluntary) disclosures (Aboody & Kasznik, 2000). Litigation: the threat of shareholder litigation can have opposing effects on the disclosure policy of the firms. Legal actions for example for untimely or inadequate disclosures can encourage firms to disclose more voluntary information in order to avoid this. On the other hand, particularly forecasting information coming from managers might be negatively influenced if there is a climate where litigation is more commonplace. If managers believe that the legal system penalizes forward-looking information that is presented and made in good faith, they will be more reluctant to disclose this kind of information; Proprietary costs: firms have incentives not to disclose information that will reduce their competitive advantage, even if these (voluntary) disclosures reduce the cost of capital as stated before. This depends on the nature of the competition. Examples are threats of entry, existing competitors etc. Verrecchia (1983) states that the incentive to disclose information is a decreasing function of the potential proprietary costs attached to a disclosure and an increasing function of the favorableness of the news in a disclosure. However, there has been little evidence that supports the propriety costs hypothesis. Watts (1986) extended the propriety costs hypothesis by including other potential externalities from information disclosure such as potential political costs by disclosing information and contracting costs which may in turn affect voluntary disclosure. Political cost can occur when companies put themselves in the spotlight. For example, high profit firms can attract media and consumer attention, which in turn could lead to higher taxes and/or other regulation; Management talent signaling: managers are believed to strive to a high market value of the firm. In order to achieve this, they have to attract and report to investors. Managers, by voluntarily disclosing information, can reveal their type in terms of their ability (Trueman, 1986). This influences the investors` perception of the managers and his ability to anticipate to future change, which will lead to a higher market value. However, research supporting or refuting this hypothesis has not been found yet.