Title
The issue of instability in a simple policy game between the central bank and a representative union The issue of instability in a simple policy game between the central bank and a representative union
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerpen :UFSIA, [*]
Source (series)
Research paper / Faculty of Applied Economics UFSIA-RUCA ; 2002:009
Volume/pages
20 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
In Europe, Small and Medium sized Enterprises (SMEs) are allowed to publish their financial statements in an abridged format. One of the main characteristics of the abridged profit and loss account is that disclosure of sales is not mandatory, but is left entirely to the discretion of the SME. In this paper we study the optimal disclosure decision for an SME that is faced with a large competitor, creditors and customers whose actions towards the firm are influenced by the signal they receive. The setup of the model is a duopoly in which one firm, the SME, holds private information about demand. This information can be truthfully disclosed, signalled by sales, or may be kept private. The rivalling firm is a large firm that uses the information to set its profit maximising output. Further, the interest rate charged by the creditors depends on their assessment of the firms financial position, which is influenced by the disclosed information. If the SME depends on only one or a few major customers, disclosing sales may imply giving these customer(s) more bargaining power, which may erode the firms profits. The paper is closely related to the analytical accounting literature that studies voluntary disclosure of value relevant information to investors and the information sharing literature. An important difference between the existing voluntary disclosure literature in accounting and our model is that we do not take capital market reactions into account. The reason for this is straightforward. Firms that publish financial statements in the abridged format are always unlisted firms. Most shareholders of SMEs tend to be closely related to the firm and have access to all relevant information. Moreover, while other voluntary disclosure models tend to restrict the players of the game to the firm and the capital market, who both wish to maximise firm value, on the one hand and a potential entrant on the other hand, we try to take more interested parties into account. This introduces different types of disclosure costs into the model. The information sharing models exclusively focus on the game of competition and usually consider two firms that both have private information. In our model only the SME has private information. The competitor is modelled as a large firm, for which disclosure is mandatory. The conclusions of the model therefore allow us to gain some new insights.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/49e1cb/7c4e45a7.pdf
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