Template-Type: ReDIF-Paper 1.0
Title: Optimal Disclosure Mandate in Supply Chains
Author-Name: Tsz-Ning Wong
Author-Email: wong@ub.edu
Author-Name: Lily Ling Yang
Author-Email: lily.yang@uni-mannheim.de
Author-Name: Andrey Zhukov
Author-Email: azhukov@compasslexecon.com

Classification-JEL: D82, D83, Q58
Keywords: Supply chain transparency, Mandatory disclosure, Voluntary disclosure

Abstract: We study a model in which a firm can acquire conclusive evidence about its suppliers
social and environmental impacts. We identify the disclosure mandate that maximizes
market information. A disclosure mandate determines whether (i) the firms investigation effort is observable by the market and (ii) obtained evidence is disclosed to the
market. When the supply chain visibility is low, the …firm does not know its suppliers
impacts. The combination of covert investigation and voluntary disclosure of obtained
evidence incentivizes the firm to acquire evidence and constitutes the optimal disclosure mandate. When the supply chain visibility is high, the firm knows its suppliers
impacts. Overt investigation and mandatory disclosure of obtained evidence together
enable the firm to signal its private knowledge through the chosen investigation effort
and maximize market information. The sharp contrast of these two cases highlights
the importance of supply chain visibility in determining the optimal mandate.

Note: 
Length: 24
Creation-Date: 2024-06
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp560
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_560