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Voluntary disclosure is the provision of information by a company's management beyond requirements such as generally accepted accounting principles and Securities and Exchange Commission rules,[1][2] where the information is believed to be relevant to the decision-making of users of the company's annual reports.[2]
Voluntary disclosure is carried out by many companies,[1] although the extent and type of voluntary disclosure differs by geographic region, industry, and company size.[3] The extent of voluntary disclosure is also affected by the firm's corporate governance structure[3][4] and ownership structure;[4] in particular, research has found that top executives have a significant influence on their firms' voluntary disclosures, and that managers have unique disclosure styles related to their personal backgrounds including their career paths and military experience.[5]
Voluntary disclosure has also been identified as an important area in financial reporting research.[3] There are links between firm choices to voluntarily disclose certain information and what they are required to disclose via mandatory disclosures.[6]
Voluntary disclosure benefits investors, companies and the economy; for example, it helps investors make better capital allocation decisions and lowers firms' cost of capital, the latter of which also benefits the general economy.[1][2] It may also reduce conflicts of interest in widely held firms.[7]
Voluntary disclosure is also affected by shareholder demands; for example 60 percent of the companies on the S&P 100 adopted voluntary disclosure policies in response to shareholder demand for information on corporate political spending.[8]
Firms, however, balance the benefits of voluntary disclosure against the costs, which may include the cost of procuring the information to be disclosed, and decreased competitive advantage.[1][2]
Voluntary disclosures can include strategic information such as company characteristics and strategy, nonfinancial information such socially responsible practices, and financial information such as stock price information.[2] The Financial Accounting Standards Board classified voluntary disclosures into the six categories below,[1] while Meek, Roberts and Gray (1995) classified them into three major groups: strategic, nonfinancial and financial information.[2]