Question

BENEFITS OF DISCLOSURE BOTH VOLUNTARY AND COMPULSORY

Answer 1

Benefits of Disclosure of Both Voluntary and Compulsory .

Comulory is the mandatory to follow the rules and regulations.where as voluntary does not require to follow the rules and regulations.voluntary disclosure provides richer information that differentiates good reporting firms from bad ones. This differentiation is lost under pooled-equilibrium mandatory and uniform disclosure. We use a sample of firms that voluntarily reported management responsibilities for financial statements prior to 2002 and compare their results to the SEC's one time mandatory certification sample in 2002.The results show that voluntary reporting has higher positive association with security returns and lower bid-ask spread than those associated with mandatory reporting after controlling for other accounting metrics such as earnings, book value and size. These findings suggest that voluntary reporting is more effective in promoting transparency and helps reduce investors' risk resulting from information asymmetry. With respect to financial reporting policymaking, we conclude that voluntary disclosure of management responsibilities for financial statements is as effective as mandatory reporting.