A TAXONOMY OF DISCLOSURE POLICIES

The disclosure policy of the firm defines the relationship between the actual outcome and the reported outcome. This paper offers a taxonomy of disclosure policies by analyzing the Nash equilibrium contract of the owner and the manager. The variety among firms is explained by dif ferent combinations (of preferences) of owner-manager pairings. When t he owner's aversion to risk changes more slowly (quickly) than the man agers's, the firm is a smoother (a maximizer). The firm tells the trut h only when the owner's and the manager's preferences behave the same.