StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Disclosure of Information for the Evaluation of the Progress of a Firm - Research Paper Example

Cite this document
Summary
This paper focuses on some of the reasons why such organizations do not feel at ease releasing information on how much they make and spend to the lenders. However, for some specific reasons, most firms feel reluctant to disclose information their expenditure and revenue…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER93.6% of users find it useful
The Disclosure of Information for the Evaluation of the Progress of a Firm
Read Text Preview

Extract of sample "The Disclosure of Information for the Evaluation of the Progress of a Firm"

The Disclosure of Information for the Evaluation of the Progress of a Firm The disclosure of vital information is important for the evaluation of the progress of a firm by the investors and shareholders. It helps companies to draw investments and remain appealing to clients, shareholders and clients. However, for some specific reasons most firms feel reluctant to disclose information their expenditure and revenue. A firm that does not have specific reports about its operation will be reluctant to provide information about its revenue and costs.

This paper will focus on some of the reasons why such organizations do not feel at ease releasing information on how much they make and spend to the lenders (Baye, 2009).Reasons for Non-Disclosure of InformationSome organizations fear disclosing income and expenditure information to the lenders because of the managerial intentions. Apparently, lending organizations need structured managerial arrangements as a requirement by organizations before lending. When a firm has information that seems to be soft and non-verifiable about its managerial intentions, it will be reluctant to disclose the information for fear of losing on lending.

For instance, in a situation where a firm intends to assume a new approach of business, it will not reveal this information until it is verifiable. This has the implication of tainting the credibility of the organization. Weak information on their previous expenditure and earnings can work against the company in terms of scaring away lenders(Brown, 1999). In other firms, the managerial intentions are open and futuristic. By disclosing this information to the banks, the firm will get information about its real and exact financial position.

There is a belief that the information disclosed to lending institutions on their income and expenditure exposes the organization’s financial weaknesses to the bank. In this regard, some firms fear that divulging information sensitive to their organizations to the banks will decrease their competitive advantage because their competitors will pick up income and expenditure flaws about its financial position. Yet in some other cases, information is direct formulations of the payment structures of employees by the firm.

Poor payments will likely attract questioning by lenders. Besides, the leakage of this information can be detrimental to the financial progress of the organization. The nature of information on managerial intention sometimes makes it a challenge for organizations to disclose their information to outsiders (Fu, 2010).Disclosure of information by firms to lenders is prone to outside market regulations, legislations and accounting norms as a regulatory oversight. Some lending firms enforce these regulations in a coercive nature.

This necessitates parent firms to withhold some information from lenders in a bid to protect its interests. For instance, information about the payment structure of employees provided to lenders can encourage labor unions to carry out demonstrations if leaked. Yet other organizations are run by informal rules that are extracted by the customs and culture of the firm. In most cases, these cultures lack efficient and elaborate channels through which information can be disclosed to the lenders (Fu, 2010).

Organizations that depend on the advice professionals such as accountants, at times, tend to receive wrong advice on the disclosure conditions and rules to lenders. This is because these professionals sometimes advise the management of firms to normalize their rules on application for disclosure. However, this process is full of complexities whose results include delays and confusion on disclosure. Additionally, disclosure rules contribute to limiting some industries from disclosing their information to the public.

For instance, utility companies are required by law to only pass some information to the lenders, but not all (Baye, 2009). The nature of the market forces in an operating environment will make a company reconsider its decision of disclosing some information to the banks and credit institutions. Some information will affect the reputation of an organization and its managers and, therefore, reduce its income. When such idea is identified, the firm will most likely withhold its information from lenders.

Further still, disclosing some information to lenders also comes at a cost. It involves a whole array of activities beginning with preparing the financial statement and then analyzing it. This information is a mandatory requirement of most lending institutions. These activities require monetary expenditures that must be incurred by both the firm and lending institution (Fu, 2010).Some organizations have organizational structures that may hinder the disclosure of their income and expenditure information to lenders.

The structures are based on the culture, strategies and politics within the organizational setting. In a case where these structures tend to conflict with the information should be disclosed, then the organization will reconsider its aim for disseminating such information. Besides, the character of the person to circulate the information has a considerable effect on the decision of information disclosure. An opportunistic character will likely disclose information while a conservative character will withhold information intended for disclosure (Baye, 2009).

ConclusionMost organizations cannot survive without lenders. In this regard, the accomplishment of any firm depends on how it governs itself, including disclosing relevant information to its lenders. This makes good governance to form the foundation upon which mutual trust among clients, managers, shareholders and suppliers is built. Disclosing governance information to all lenders is of crucial and strategic importance. Firms must be ready and willing to restructure their management and disclose the relevant information required by lending institutions in accordance with the governing laws and regulations.

ReferencesBaye, M. (2009). Managerial economics & business strategy. New York: McGraw-Hill Companies, Incorporated.Brown, J. R. (1999). The regulation of corporate disclosure, Issue 1. Gaithersburg, MD: Aspen Publishers Online.Fu, J. (2010). Corporate disclosure and corporate governance in China. Austin, Tex.: KluwerLaw International.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“The Disclosure of Information for the Evaluation of the Progress of a Research Paper”, n.d.)
The Disclosure of Information for the Evaluation of the Progress of a Research Paper. Retrieved from https://studentshare.org/business/1460387-full-information-disclosure
(The Disclosure of Information for the Evaluation of the Progress of a Research Paper)
The Disclosure of Information for the Evaluation of the Progress of a Research Paper. https://studentshare.org/business/1460387-full-information-disclosure.
“The Disclosure of Information for the Evaluation of the Progress of a Research Paper”, n.d. https://studentshare.org/business/1460387-full-information-disclosure.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Disclosure of Information for the Evaluation of the Progress of a Firm

Financial Instruments Disclosure

Although fair value accounting is considered to be the most relevant information for predicting future cash flows, yet the reliability of the fair value measures has been questioned (Hitz, 2007, pp.... Disclosure of Non-Proprietary Information Proprietary information is a type of information whose disclosure affects a company's future earnings potentially and is beneficial to the shareholders occasionally (Dye, 1985, p.... disclosure of Non-Proprietary Information 5 1....
48 Pages (12000 words) Dissertation

The Financial Reporting Disclosure

For example the disclosure of material uncertainties as per the going concern basis of accounting is to be made.... For example the annual reports include the disclosure of value at risk.... hellip; The author states that the financial reporting disclosure requirements and norms need to respond according to the changes like breaking down of items in the report to providing more detailed disclosures of the items like disclosure of assumptions, sources of estimation, models used, alternative measurement bases etc....
5 Pages (1250 words) Essay

Implementation and Communication of Hedging Activities

Using a sample of derivative user and non-user firms, this study empirically compares earnings predictability, forecast revision behavior, and the earnings response coefficients before and after the disclosure of sustained hedging activity. The findings indicate that analysts' forecast accuracy increased and that unexpected earnings were incorporated into subsequent earnings forecasts to a greater extent subsequent to disclosure of sustained hedging activity.... This study adds to the empirical evidence regarding the effects of hedging activity by providing direct evidence of analysts' use of and investors' reactions to earnings surprises following the disclosure of the implementation of hedging activities....
22 Pages (5500 words) Essay

Explicit and Implicit Cost on Firms in an Informational Efficient Environment

art 02: Measuring a Firm's costs and its goal of Profit MaximizationMeasuring A Firm's Costs (Opportunity Costs):Economists consider the opportunity costs of all resources of a firm to calculate its costs whether they are paid or not.... Opportunity cost of a firm is the value of the firm's best alternative use of resources.... conomic cost = Opportunity Cost= Explicit cost + Implicit Cost = Total cost of a firm.... o there are two main aspects of a firm's implicit cost: i)The cost of a firm's own capital: If a firm...
9 Pages (2250 words) Essay

Stock Price and Information

1 By information uncertainty, it is meant that ambiguity with respect to the implications of new information for a firm's value, which potentially stems from two sources: The volatility of a firm's underlying fundamentals and poor information.... For each of the six proxies, greater information uncertainty leads to relatively lower future stock returns following bad news and relatively higher future returns following good news, suggesting that uncertainty delays the flow of information into stock prices....
20 Pages (5000 words) Essay

Business Ethics and Financial Accounting Standards Board

Thus, the varying responses to the FASB on the ED for FAS 123 provide a unique opportunity to examine whether economic self-interest motivates lobbying on venues and formats of disclosure of information (Breton Wall Street Journal, 5 November 1993).... For example, Watts and Zimmerman (1978) report that economic self-interests motivate a large firm to lobby for an accounting standard that reduces pro forma net income.... The present study extends prior research by examining whether economic self-interests affect corporate lobbying on disclosure, especially on Prior to the 1993 Exposure Draft (ED) on FAS 123, Accounting for Stock-Based Compensation, corporations provided relatively little information on the value of stock-based compensation (SBC) held by top management....
9 Pages (2250 words) Essay

Increasing Trend among the Businesses in Hong Kong to Publish Nonfinancial Information

the disclosure of the non financial information increases the efficiency and improves the transparency of the companies or the organizations.... the disclosure of such non financial information is mainly disclosed through the corporate social responsibility and sustainability in the report.... In conducting the business activities the investors generally requires correct, accurate and timely information in order to make an effective and efficient investment decisions....
10 Pages (2500 words) Essay

The Importance of Interpersonal Communication Skills

In other words, it involves the provision of information to others, which they may not be able to find out on their own (Roberts 2005 p 46).... Through self-disclosure, personal information is shared with other people, leading to the development of intimacy as well as strong interpersonal connections.... t certain times, self-disclosure involves taking risks by the individual who shares private information with others.... This is because the information may be damaging especially when revealed to inappropriate persons who might be unable to keep it to themselves....
7 Pages (1750 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us