Financial reporting is valuable because corporate governance—which we view as the set of contracts that help align managers’ interests with those of shareholders—can be more efficient when the parties commit themselves to a more transparent information environment. This is a key theme in our article The Role of Financial Reporting and Transparency in Corporate Governance, which reviews recent literature on the part played by financial reporting in resolving agency conflicts among managers, directors, and shareholders. In this post, we highlight some of the governance issues and recommendations discussed in the article, and we focus on how information asymmetries can create agency conflicts.
Since the height of the financial crisis, each year the Federal Reserve has disclosed the results of its stress tests, and stress testing has become “business as usual” in the U.S. banking industry. In this post, we assess whether market participants find supervisory stress test disclosures informative. After half a decade, do the disclosures still contain information that the market finds valuable?