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Debt and Voluntary Disclosure, The Accounting Review


We develop a model of voluntary disclosures by a manager whose firm issues two securities, publicly traded debt and equity, and where the manager's compensation is based on a weighted average of the prices of these securities. Several appealing empirical predictions emerge from the analysis including: 1. the relationship between debt and disclosure is not monotonic: at low levels of indebtedness, an increase in the firm's level of debt financing causes the manager to disclose less, whereas at high levels of indebtedness, a further increase in the level of debt financing causes the manager to disclose more; 2. increasing the weight placed on the price of the firm's equity in the manager's contract uniformly results in the manager disclosing less; 3. a contract that puts equal weight on debt and equity prices results in the manager making the most voluntary disclosures, but is undesirable because such a contract results in the manager adopting too low effort (relative to other contracts that place more weight on equity than debt).




Ronald A. Dye, Anne Beyer

Date Published



Dye, Ronald A., and Anne Beyer. 2021. Debt and Voluntary Disclosure. The Accounting Review.


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