Voting over Disclosure Standards

This article examines the nature of disclosure standards, under the assumption that (i) standards preferred by more firms are collectively chosen and (ii) privately informed firms prefer standards that increase market perceptions about the value of their assets. A standard is stable if it is preferred by a large enough super-majority of firms over any other standards. Absent any restriction on possible standards, only unanimity would make a standard stable. By contrast, when requiring standards that classify news from best to worst, there is at most a single stable standard, and it must be full disclosure. For a large class of distributions over valuations, the required super-majority is about two-thirds, close to the majority required in many standard-setting boards. Value distributions with heavy tails, such as news that contains extreme risks, require higher super-majorities to be stable. These insights are robust to settings in which the information is used in decision-making.