04-01-2026
Public companies live in a world of information asymmetry. Executives know far more about their firms’ performance and prospects than outside investors do, which is why financial reporting rules require companies to disclose certain information. Yet many disclosures are voluntary, including earnings guidance, strategic updates and operational insights. What determines whether managers choose to share or withhold information?
New research by Purdue accounting scholar Joaquin Peris highlights an overlooked factor: the way information travels inside the firm. His study, “Voluntary Disclosure and the Internal Information Environment of the Firm,” shows that a company’s internal information environment — how easily good or bad news reaches senior leaders — can significantly influence whether managers disclose information to the market.
Why does this matter to executives and managers? The structure of internal reporting systems doesn’t just affect operational decisions. It can also shape how transparent the organization appears to investors.
Most research on corporate disclosure assumes that senior leaders simply know the relevant information and decide whether to release it. But in reality, executives often depend on internal reporting channels such as data systems, middle managers and operational reports to learn what is happening across the organization.
Peris’ research introduces the concept of the internal information environment, which describes how likely managers are to learn about positive versus negative developments inside the company.
Two broad types emerge:
In these organizations, bad news travels more quickly upward than good news. Internal controls or reporting norms emphasize identifying problems, risks or negative outcomes.
Here, positive information reaches leadership more readily than negative information. Bad news may be delayed, filtered or softened as it moves through the organization.
These dynamics reflect common organizational realities. Some leaders explicitly encourage employees to surface problems early so they can respond quickly. Others create cultures, intentionally or not, where employees hesitate to report issues upward.
One of the study’s most surprising conclusions is that better-informed managers do not always disclose more. The model shows that more conservative internal information environments tend to reduce voluntary disclosure. Why?
When a company’s systems are designed to surface bad news quickly, managers are more likely to learn about negative developments. However, if investors observe no disclosure, they may infer that management simply has not received information about positive developments yet. In that case, investors may assume firm value is relatively strong despite the silence.
This dynamic can actually make it more attractive for informed managers to withhold negative information rather than disclose it. The result: voluntary disclosure decreases.
By contrast, in aggressive environments where good news flows upward more readily, managers are more likely to share information publicly because silence is more likely to signal that something is wrong.
The study also examines how internal information systems interact with the external information environment, particularly the degree of uncertainty investors face about firm value.
When investor uncertainty rises — for example, during technological disruption or economic volatility — the effect on disclosure depends on the internal environment:
This interaction helps explain why empirical studies have found conflicting results on whether information asymmetry encourages or discourages corporate disclosure. In some firms, more uncertainty pushes managers to reveal more information. In others, it leads to greater silence. The difference lies in how information flows internally.
Although the study is theoretical, it offers practical insights for executives responsible for governance, transparency and internal controls.
Executives often view internal reporting primarily as a tool for operational decision-making or risk management. But the research shows these systems also influence disclosure incentives. Organizations that emphasize rapid reporting of problems may unintentionally reduce incentives for voluntary transparency.
Information environments are not just about formal controls. Organizational culture — whether employees feel safe sharing bad news — plays a major role in determining what leaders know. Companies where negative information is suppressed may actually end up disclosing more externally because silence becomes suspicious.
Policies designed to improve internal controls, such as expanded compliance systems or risk monitoring, may inadvertently alter disclosure behavior. The study suggests that regulations encouraging firms to detect negative events could reduce voluntary disclosures in some contexts. Conversely, expanded mandatory reporting requirements may either crowd out or encourage voluntary disclosures depending on the firm’s internal information environment.
Executives should periodically assess:
These design choices influence not only decision quality but also how the company communicates with the market.
For years, discussions about corporate disclosure have focused on investor demand, regulatory requirements and strategic incentives. This research adds an important dimension: internal information architecture.
Transparency to the outside world often begins with transparency inside the organization. When leaders understand how information flows upward and how those flows affect disclosure incentives, they can design systems that improve both internal decision-making and external credibility.
