Is it time to reform the financial reporting regulations that were established in the early 1900s? Will new regulations improve the corporate disclosure process? The authors conducted a national survey of corporate managers, financial analysts, and portfolio managers to examine their options on disclosure regulation and how companies communicate with the capital markets. Their analysis indicates that, while all three groups think market functioning is imperfect, they do not see a need for increased financial reporting regulation. Rather, the authors’ analysis suggests that companies can improve the processes of disclosure and communication by developing a strategy for corporate information disclosure, upgrading the role of the investor relations staff, and voluntarily reporting nonfinancial information. Such improvements would increase management credibility, analysts’ understanding of the firm, investors’ patience, and, potentially, share value.
1. See, for example:
R. Kuttner, The End of Laissez-Faire: National Purpose and the Global Economy after the Cold War (New York: Random House, 1991);
J. Grant, Money of the Mind: Borrowing and Lending from the Civil War to Michael Milken (New York: Farrar Straus Giroux, 1992);
S. Klarman, Margin of Safety: Risk Averse Value Investing Strategies for the Thoughtful Investor (New York: HarperBusiness, 1991); and
L. Thurow, Head to Head: The Coming Financial Battle between Europe, Japan, and America (New York: Morrow, 1992).
2. See J. Coffee, L. Lowenstein, and S. Rose-Ackerman, eds., Knights, Raiders & Targets: The Impact of Hostile Takeovers (New York: Oxford University Press, 1988); and
L. Lowenstein, What”s Wrong with Wall Street (Reading, Massachusetts: Addison-Wesley, 1988), and Sense and Nonsense in Corporate Finance (Reading, Massachusetts: Addison-Wesley, 1991).
3. See J.V. McGee and R.G. Eccles, “Business Models and Performance: Improving Dialog about Measurement”
The authors acknowledge financial support from Ernst & Young”s Center for Business Innovation and the Harvard Business School.