Proprietary and Nonproprietary Disclosures

The article presents a theory for the disclosure policies adopted by managers endowed with proprietary and nonproprietary information. This paper presents a theory for the disclosure policies adopted by managers endowed with proprietary and nonproprietary information. Proprietary information is defined as information whose disclosure reduces the present value of cash flows of the firm endowed with the information. This theory explains selective disclosure of management's information and the effects of changes in financial reporting requirements on firms' voluntary disclosure policies. Most existing theories of disclosure' conclude that, when credible announcements of private information are feasible, full disclosure is optimal. The results of this paper depend on the assumption that managers can make verifiable announcements regarding their private information. Since many studies assume that such announcements are not credible without being accompanied by costly signals, this assumption deserves some comment. In practice managers acquire private information about their firms by reading and drafting budgets.