Forcing firms to talk: Financial disclosure regulation and externalities

We analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation, In our model disclosure is costly, it has private a nd social value, and its precision is endogenous. We show that (i) a convex ity in the value of disclosure can lead to a discontinuity in the disclosur e policy; (ii) the Nash equilibrium of a voluntary disclosure game is often socially inefficient; (iii) regulation mat requires a minimal precision le vel sometimes but not always improves welfare; (iii) the same is true for s ubsidies that change the perceived cost of disclosures; and (iv) neither re gulation method dominates the other.