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Discretionary disclosure theory suggests that proprietary costs are an important reason why firms often withhold material information, but empirically testing this hypothesis has proven to be difficult because of the elusive nature of proprietary costs and lack of settings in which proprietary disclosures are voluntary. Until recently, German firms were not required to disclose business segment reports, which are generally viewed as competitively sensitive and proprietary in nature; an analysis of voluntary business segment disclosures of firms finds evidence that is consistent with the proprietary cost hypothesis. As Germany now requires segment reporting by all listed firms, an ex post examination is made to determine whether segment reporting is more revealing for those firms that previously chose not to disclose. It is found that firms are less likely to provide segment reports voluntarily if segment profitability is more heterogeneous and the average profitability reported in the income statement is less revealing; this finding is also consistent with the proprietary cost hypothesis and shows that segment disclosures are not governed by capital-market considerations alone. The findings are benchmarked using voluntary cash flow statement disclosures, because these are less competitively sensitive than segment reports, which are likely to reveal proprietary information to competitors; the finding here is that cash flow disclosures appear to be governed primarily by capital-market considerations, and this lends further support to the proprietary cost interpretation of the segment reporting results.

This chapter shows that the problem caused by mandated disclosure is both intensive and extensive. It is intensive because decisions are so unfamiliar and extremely complex that considerable learning is needed to understand them. The problem is extensive because these decisions arise in incontinent fashion. To prove that the decisions that mandates commonly address are highly unfamiliar and complex, the chapter considers two kinds of decisions: negotiating with lenders when buying a home and choosing a medical treatment for prostate cancer. It then demonstrates how common unfamiliar and complex decisions are and how extensively disclosures are mandated by citing examples in areas such as financial disclosures, which are supposed to make consumer finance transparent; health-related disclosures and their emphasis on informed consent; insurance; privacy and data collection; and the Miranda warning.

Explores the link between corporate governance and accounting using the US cross-listing of Daimler-Benz as an example. The changes in Daimler’s corporate governance around the cross-listing, essentially grafting elements of a shareholder value model onto its stakeholder structure, is highlighted, and the resulting changes in its approach to financial reporting is discussed. The case study highlights the economic forces that shape accounting practice and drive accounting harmonization around the world. The eight sections of the chapter are: Introduction; Background to the events of the case; Code-law and common-law models of corporate governance, financial reporting, and disclosure; Some properties of the German institutional structure; Daimler’s 1993 events: Disclosing a loss, hidden reserves, NYSE listing, US GAAP reporting, plant closing, and employee layoffs; Daimler-Benz’s motives; Embracing shareholder value; and Limitations, outcomes, and risks.

This chapter presents a summary of some of the most important federal ethics rules, observations about how they work in practice, and suggestions for how they could be more effective. Topics discussed include gifts and travel, restrictions on representation, financial disclosure, financial conflicts of interest, covered relationships and the impartiality rule, and the movement of personnel between government and private industry.

This chapter discusses the market for financial advisers. Because many people are not financially sophisticated, the quality of financial advice is a retirement policy concern. Financial advisers provide a valuable service, and many provide unbiased advice. The United States Department of Labor has estimated that pension participants save billions of dollars a year in financial mistakes avoided due to financial advice. Financial advisers, however, provide many types of services, sometimes have conflicts of interest, and do not always have a fiduciary duty to provide advice in the best interest of the client. Some financial advisers engage in ‘hat switching,’ interacting with the same clients as a fiduciary for some transactions, but without fiduciary responsibility for other transactions. Understanding the adviser’s sources of compensation, including third party compensation, will help identify conflicts of interest that may affect the quality of advice clients receive.

On 30 July 2002, President George W. Bush signed into law the Sarbanes–Oxley Act of 2002. Many observers and commentators would say that the Sarbanes–Oxley Act is the single most important piece of legislation affecting corporate governance, financial disclosure, and the practice of public accounting since the US securities laws of the early 1930s. The United States Senate passed the legislation on a vote of 97–0. The United States House of Representatives adopted it by a vote of 423–3. This was a surprising show of bipartisanship in such a politically charged environment as Washington, D.C. This chapter examines the factors that allowed this to happen.