My remarks concern the potential policy implications that arise from the relations among disclosure, cost of capital, and the nature of the capital market setting. My primary claim is that different capital market settings may yield different policy implications. For example, consider disclosure by an individual firm in a diversified market setting. That element of disclosure that provides information about the idiosyncratic behavior of the firm's cash flow may have no relevance to policy makers in a market where idiosyncratic effects diversify away. Alternatively, that element that provides information about the systematic behavior of the firm's cash flow may be relevant because it affects systematic risk. In other words, the policy implications of disclosure cannot be divorced from assumptions about the nature of the capital market setting where a firm's shares are traded.

With regard to capital market settings, one salient feature is whether the market is perfectly competitive,...

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