In the USA and other similar law nations, publicly traded firms are obligated to make regular public filings of information giving out in depth financial details concerning the firm. Critical sections of these reports must be certified by self-regulating auditors. The report also must be in line with the standard practices of accounting that are set by the self-regulating standard setters in the accounting profession. Retribution for executives and directors of firms that report deceptive information can be severe.
Bothe the securities watchdogs and private shareholders play a part in watching the disclosures. Additionally, insiders are forbidden from trading on information prior to its publication or announcement. Generally, there are two schools of thought regarding the global trend toward increased financial disclosure by publicly traded firms.
The investor primacy outlook, which has been prevailing in the US and most of the English-speaking countries, focuses on the set of control issues that crop up in publicly traded firms in which shares are held and traded by many persons with tiny or no administration link to the firm. This is the agency cost problem ensuing from the division of ownership from management.
The second school of thought, popular in Europe and Asia, is where firms are viewed as entities with a quasi-public nature and responsibility. In this outlook, the correct goal of corporate governance is viewed as a balancing of interests amongst all of the firm's stakeholders. This "stakeholder outlook" of the corporation is not strongly grounded in a strong theoretical base.
The shareholder outlook offers profound and open financial markets, and comparatively independent boards and executives; however, each school of thought certainly has its own strengths and weakness. It leads to an improved disclosure. Improved disclosure aids in diminishing uncertainty in the market; therefore, escalating the stock prices.
Nonetheless, the requirement of improved disclosure result in escalating costs which are in the shape of preliminary preparation of fiscal statements, the constant costs related to periodic preparation of fiscal statements and the costs of collecting and dispensing information about the firm on a periodic basis. Disclosure is definitely a double-edged blade.