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Session Chair: Liyan Yang, University of Toronto Discussant: Yan Xiong, Hong Kong University of Science and Technology
Location:9B301 (3rd basement floor, International Hall)
Presentations
Leaks, disclosures and internal communication
Snehal Banerjee1, Peicong Hu2, Taejin Kim3
1UC San Diego; 2The University of Hong Kong; 3Korea University
We study how increasing whistleblower incentives affects a firm's communication decisions, price informativeness and real efficiency. An informed manager, who can divert cash for private benefit, privately communicates with his employee about project fundamentals and chooses investment. Given her information, the employee maximizes internal alignment and can leak the manager’s message with some noise. Stronger whistleblower incentives lead to more informative leaks, less misconduct and higher price informativeness. However, they can decrease firm value and real efficiency by increasing the manager's manipulation of internal communication. More targeted policies (e.g., mandating more public disclosure) improve both price informativeness and real efficiency.
