Capital markets are considered "efficient" when stock prices reflect all available information. Robust disclosures accelerate this process. Instead of prices reacting to rumors or delayed leaks, they incorporate factual data immediately, leading to stock prices that more accurately reflect the company's . 5. Management Accountability (Agency Effects)
Creditors and rating agencies use disclosures to assess default risk. Clearer financial reporting often leads to better credit ratings and lower interest rates on corporate bonds. 3. Increased Market Liquidity Capital-market effects of corporate disclosures...
Public disclosures act as a disciplinary mechanism. Knowing that financial results and strategic decisions will be scrutinized by the market, managers are less likely to engage in "empire building" or "shirking." The market's reaction to a disclosure serves as a real-time report card on management’s performance. 6. The "Voluntary" vs. "Mandatory" Dynamic Capital markets are considered "efficient" when stock prices