The effect of deregulation and capital market incentives on voluntary disclosure in the electric utility industry

There are many incentives that impact managers' disclosure decisions. This paper primarily examines one of these incentives - the capital market incentive. We offer a unique setting, the electric utility industry as it transitioned through deregulation, and we show a positive association between voluntary disclosure and deregulation in the post-regulation era. This paper also examines the consistency of four proxies used by accounting researchers to measure disclosure levels: analyst following, analyst forecast revisions, analyst forecast accuracy, and a self-constructed measure. Overall, our results provide empirical evidence that the deregulation of the electric utility industry is strongly associated with an increase in voluntary disclosure, providing additional evidence to support existing theories explaining firms' voluntary disclosure of information. We find mixed supporting evidence for the supplemental proxies. Our findings offer support to regulators that seek to justify the impact of deregulation on disclosure and capital market participants including analysts and firms.