ACC 680: Disclosure Theory
Contents
The aim of this seminar-style course is to provide students with insights into analytical disclosure theory, one important stream of literature in accounting research. The course provides an overview into the various determinants that shape firms’ reporting decisions. The structure of the course follows along the evolution of research in disclosure theory: In his famous paper about the “Market for Lemons”, Akerlof (1970) predicts a collapse of markets as the result of information asymmetries between sellers and buyers. Building on that, Grossman and Hart (1980) set out the unraveling principle, describing that sellers (or firms) have a vested interest in establishing information symmetry to distinguish themselves from the anonymous, silent mass. These papers provide a basis for a comprehensive literature stream that analyzes the emergence of disclosure equilibria in various settings.
Learning outcomes
Students know the fundamental literature of disclosure theory. They understand the unraveling principle, its assumptions, and consequences for the disclosure behavior of firms. Furthermore, students are able to assess and discuss the setting, basic assumptions, and mechanisms of analytical disclosure models. Participants are able to formulate constructive criticism of disclosure models and to defend them.
Necessary prerequisites
Not taken ACC 675
Recommended prerequisites
Basic knowledge in game theory, preparation of provided literature
| Forms of teaching and learning | Contact hours | Independent study time |
|---|---|---|
| Lecture | 2 SWS | 9 SWS |
| Exercise class | 1 SWS | 5 SWS |
| ECTS credits | 6 |
| Graded | yes |
| Workload | 180h |
| Language | English |
| Form of assessment | Written Report (50%), presentation (50%) |
| Restricted admission | no |
| Further information | – |
Examiner Performing lecturer |  | Prof. Dr. Dirk Simons Prof. Dr. Dirk Simons |
| Frequency of offering | Spring semester |
| Duration of module | 1 semester |
| Range of application | M.Sc. MMM, M.Sc. Bus. Edu., M.Sc. Econ., M.Sc. Bus. Inf., LL.M. |
| Preliminary course work | – |
| Program-specific Competency Goals | CG 2, CG 4 |
| Literature | This course covers both some seminal and current papers in the disclosure theory area. They include but not limited to: Akerlof, G.A. (1970): The market for ‘lemons’: quality uncertainty and the market mechanism, QJoE, 84, pp. 488 – 500 Beyer, A. et al. (2010): The financial reporting environment: Review of the recent literature, Journal of Accounting and Economics, 50, pp. 296 – 343 Ebert, M., Simons, D., and Stecher, J. D. (2017). Discretionary aggregation. The ac- counting review, 92(1):73–91. Grossman, S.J, Hart, O. (1980): Disclosure laws and takeover bids, JoF, 35, pp. 323–334 Jung, W.O., Kwon, Y.K. (1988): Disclosure when the market is unsure of information endowment of managers, JoAR, 26, pp. 146–153 Verrecchia, R. E. (1983). Discretionary disclosure. JoAE, 5, 179–194. |
| Course outline | The information asymmetry between investors and firms could cause a market collapse. Thus, disclosure is in the firm’s best interest. This course consists of three major parts. In the first part we introduce the unraveling principle that can be considered as the starting point of disclosure theory. In the second part we consider papers that relax certain assumptions underlying the revelation principle. This means we consider conditions under which a full disclosure equilibrium, i.e., settings where every firm discloses, is replaced by a partial disclosure equilibrium, i.e., settings where subsets of firm disclose. In the third part we consider papers with more descriptive contexts and their implications for real-world disclosure. |