Events

Prof. Hui Chen
Professor of Accounting
Department of Business Administration
University of Zurich

To study how firm disclosure shapes corporate democracy, we develop a model in which shareholders vote on a proposal whose value depends on two dimensions: the firm’s internal financial condition and the external economic environment. The firm can disclose a public signal about the first dimension, while shareholders can acquire costly private information about the second. Shareholders then vote under majority rule. Disclosure affects voting through two distinct channels: it raises the decision value of shareholders’ private research, but also reduces shareholders’ pivotality by making voting outcomes more predictable. The interaction of these channels generates an inverted-U shape: as disclosure precision rises, shareholders’ information acquisition is first crowded in and then crowded out, peaking at a unique level that we characterize in closed form. Further, the peak shifts toward higher disclosure precision as ownership becomes more dispersed, because individual shareholders are then less likely to be pivotal. Despite this non-monotonicity in information acquisition, voting accuracy and welfare increase monotonically in disclosure precision: crowd-out is efficient because it suppresses costly information acquisition precisely when an additional private signal is unlikely to change the voting outcome. Unlike feedback or attention-based mechanisms, crowd-out here operates through voting pivotality rather than informational redundancy or limited processing capacity. These insights provide a governance-based rationale for high-quality accounting disclosure and generate testable implications for investor research, ownership structure, and voting outcomes.