The study aimed to establish the ease at which organizations could obtain capital within the context of report disclosures (Beyer and Ilan 1141). The study authors established that it would be important to use a standard model that captures organizational changes (ownership). The study showed that some managers would prefer equity capital over debt capital when investing for organizations (Beyer and Ilan 1143). However, this is not supported because the study did not use an optimal contracting perspective (Richardson and Michael 597). Thus, equity factors that influence debt across organizations were not determined. Findings from the model showed that managers could use voluntary disclosure models to make real decisions that would aim to issue more favorable business reports. This observation is practical because many organizations make financial and investment decisions aimed at enhancing shareholders’ perception about a firm (Richardson and Michael 600). Also, managers have been shown to voluntarily disclose information because they change some business facts to reflect the need to acquire equity capital at better rates.
The study authors assert that managers’ decisions on investment and financial management are manipulated to adopt reports on suboptimal results realized from unsound investment actions (Beyer and Ilan 1166). However, it can also be noted that qualitative predictions are crucial in determining the time of separating investment disclosures and investments. At some point, managers are required to truthfully report their findings because reporting wrong findings to shareholders could impact an organization negatively (Richardson and Michael 605).
In conclusion, the authors found that it is important for managers to consider the relationship between firms’ disclosure and decisions affecting financial investments. Thus, it would be crucial for managers to understand the long-term impact of manipulating reports in order to affect organizations’ disclosure strategies.
References:
Beyer, Anne, and Ilan Guttman. “Voluntary Disclosure, Manipulation, and Real Effects.” Journal of Accounting Research 50.5 (2012): 1141-1177. Print.
Richardson, Alan J., and Michael Welker. “Social disclosure, financial disclosure and the cost of equity capital.” Accounting, Organizations and Society 26.7 (2001): 597-616. Print.