Voluntary Disclosure, Operational Efficiency, and Forecast Precision

This paper establishes linkages among the firm's discretionary disclosures and other firm-specific operational activities, such as managerial compensation, demand forecast, marketing efforts, and production planning. We show that the option of discretionary disclosures and managerial self-interests in the firm's share price do not necessarily distort the operational activities such as marketing and production, but do induce less investments in forecast precision than a benchmark does. The firm's cash flows (excluding cost of disclosures) are actually the highest when the manager's compensation package is not directly linked to the share price or when the disclosure is mandatory. Our analysis also adds into the debate about mandatory and voluntary disclosures by showing that mandatory disclosures may produce better quality public information but on the expenses of corporate resources