Disclosure Behaviors: A Disconnection View
See also: Disconnection
of Corporate Disclosure
A better understanding of corporate disclosure should help explain those
other investment and employment behaviors which have more immediate
social impacts and may thereby improve early warning capabilities for
economic and social change. Three views of disclosure behaviors shall be
proposed which, although based on different conceptual foundations,
support the "disconnection argument", namely that corporations may have
an incentive to disjoin and obsfucate disclosed information.
- The first proposition rests on normative microeconomic principles
(Lamberton 1984) and strategic management concepts (Mattsson 1987,
Ullman 1985). In this view, disclosure (or non-disclosure) behaviors are
based on clearly defined objectives of the firm and/or represent
strategic tools for managing, possibly conflicting, stakeholder claims to
the firm's resources.....
- This "information first, action later" model has been challenged by
rational expectations views (Holthausen & Verrecchia 1990).
Organizational behavior is seldom based on clearly articulated prior
- A still more 'ambiguous view' of organizational behavior
further strengthens the disconnection argument. Information users
and their information needs may be ill defined or not well understood
by the corporation. Moreover, information users whose relationships
to the corporation are not protected by explicit principal-agent
contracts or unambiguous government regulations cannot expect
harmonious and compatible information disclosures by the corporation.
Indeed, information users may contribute to the loosening of their
link to the disclosing corporation; they may avoid specifying
their information needs and instead encourage an indiscriminate
flow so as to obscure the uses and usefulness of specific types
of information and to reduce the incentive to manipulate the signals
(March & Sevon 1984).
Such a view highlights whatever degree
of independence might exist between streams of problems, choice
opportunities, solutions, participants and shared information
Feldman & March 1981;
may be disconnected from corporate goals and based on their own,
more myopic objectives. Decision makers would wait for the fitting
information to flow by, for example, information which can be
disclosed to stakeholders to justify past actions or at times
when they expect information. While it may be inappropriate to
generalize this modus operandi, it may be a reasonable approximation
for behaviors for which more deliberate and coordinated information
processes are inefficient or not yet recognized as important.
At the very least, it may resemble the "view from the outside",
i.e. the perception of constituents unable to reconnect fragmented
In brief, corporate information 'obfuscation' will come about
through unintentional or deliberate "disconnection",
namely disclosures involving (i) excessive segmentation leading
to information overload and confusion; (ii) fragmentation, i.e.
uncoordinated segmentation (i.e. segmentation without an evaluative
framework) leading to a lack of cross sectional and longitudinal
comparability; (iii) the use of performance measures which are
linked to corporate segments in inaccurate or misleading ways;
(iv) inappropriate or excessive aggregation and consolidation;
(v) linguistic obfuscation (plausible, but not pursued
in this paper).
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