Reputation effects of information sharing

The paper then compares such a dividend-only economy with one where information sharing is an additional tool available for building reputation. Information sharing disciplines the potential opportunism accruing to a manager out of her informational advantage. It provides ex post verifiability of the state of nature and thereby, obviates downward revision of an investor's prior beliefs about a manager's trustworthiness. This results in a greater region of pure strategy play in the dividend-and-information-sharing economy. Since such pure strategy play implies investment with certainty, information sharing leads to higher investment. Further, pure strategy play implies returns consistent with the actual state of nature in the dividend-and-information-sharing economy while it implies dividend consistent with the lower state of nature in the dividend-only economy and these lead to higher return in information sharing.