What is it about?
This paper uses laboratory experiments to show that a more detailed disclosure of financial information of a company can increase the likelihood of coordination failures (e.g., bank runs), especially when the company's future prospects don't look good. As such, a less detailed, aggregated disclosure can help.
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Why is it important?
Popular press, regulators, and politicians often argue that more information disclosure by a company is always better because more information helps investors, creditors, and other stakeholders of the company make better decisions. This paper shows that this argument is not necessarily true in an economy in which those stakeholders' actions are complimentary to each other.
Perspectives
The findings of this paper inform us about the negative effects of the mandated public disclosure of stress test results of the systematically important banks in the U.S. While the public release of the test results improve market discipline, the disclosure can increase the likelihood of a bank run especially when the economic outlook is bleak.
Dr. Sanjay Banerjee
University of Alberta
Read the Original
This page is a summary of: Public Information Precision and Coordination Failure: An Experiment, Journal of Accounting Research, August 2016, Wiley,
DOI: 10.1111/1475-679x.12124.
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