Author: Xue Jia
The problem
Corporate governance is often framed as a balance between managers and shareholders.
Active shareholders bring oversight and discipline; they are usually seen as beneficial. But that view assumes their incentives are aligned with the firm’s long-term interests. In reality, many investors are focused on short-term performance.
That creates a tension. Shareholder intervention can improve decisions, but it can also push firms in the wrong direction.
The idea
Instead of treating corporate disclosure as a way to inform markets, this paper looks at how managers use disclosure to shape shareholder behaviour, specifically whether shareholders choose to intervene. In this sense, disclosure becomes part of the governance system. It influences how control is exercised inside the firm.
What we find
Not surprisingly, managers do not always disclose everything they know.
When shareholder incentives are relatively long-term, managers disclose both very good and very bad news. This helps ensure that intervention happens when it should and doesn’t when it shouldn’t.
However, when shareholders are more short-term focused, managers are more selective. They disclose good news, but may withhold bad news to avoid triggering intervention that would harm long-term value.
Why it matters
This finding goes against the usual assumption that more transparency is always better.
Here, disclosure affects real decisions. It shapes whether shareholders step in, and whether that intervention is expected to add value.
The governance insight
Governance is not just about monitoring; it is also about managing intervention.
Managers use disclosure to influence shareholders’ act. The challenge is balancing two risks: too much intervention, and too little.
The bottom line
Disclosure is part of how firms are governed.
When incentives are misaligned, saying less can sometimes lead to better decisions than saying more.
Jia, X., & Menon, R. (2023). Shareholder short-termism, corporate control and voluntary disclosure. Management Science, 69(1), 702-721.
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