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Soft Information and the Stewardship Value of Accounting Disclosure

Authors/Editors: Heinle, Mirko
Hofmann, Christian
Published: 2011
Type: Articles in Refereed Journals (International)
ISBN/ISSN: 0171-6468
Published by: OR Spectrum
Additional information: 33 (2) 2011, 333-358


In light of IASB’s statement to drop stewardship as a separate objective
of financial accounting and the ongoing debate about increasing the disclosure of
soft information, we investigate the economic consequences of publicly reported soft
information from a stewardship perspective. In an LEN model we include market
price as a performance measure and investigate whether the principal benefits from
disclosing additional information. While the principal can only use contractible performance
measures in the contract with the agent, capital market participants can only
use disclosed information when pricing firm value. We find that the disclosure of
information can decrease the principal’s expected net profit. This result follows from
either a noisier or a less congruent market price as a consequence of disclosing additional
information. Thus, we present a rationale for partial disclosure in the absence
of proprietary costs or the uncertainty of information endowment.