From Life Cycle to Agency Frictions: The Mediating Role of Disclosure Tone

Abstract

The underlying study demonstrates that qualitative disclosure serves as a powerful governance mechanism that reduces information asymmetry between principal-agent and among multiple types of principals themselves. This research aims to integrate multiple theoretical frameworks at the intersection of organizational life cycle, agency theory, and the information asymmetry stream. To analyse the disclosure tone for a sample of 650 firm-year observations, a self-constructed Python program was used. By employing SEM, the direct and indirect effects of OLC on two types of agency costs are observed. The study shows that life-cycle stage exerts a direct effect on both principal-agent and principal-principal agency costs even when disclosure characteristics are controlled for. Even though the tone has strong direct effects on dependent variables, the weak relationship between OLC stage and tone infers that the market punishes positive tone, perhaps because it is perceived as a sign of managerial over-optimism or impression-management efforts. The study may still be subject to omitted variable bias or the unexplored reverse causality. Future studies should seek to build more holistic and integrated theoretical models that include mediating mechanisms beyond tone.

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