Question

It is argued by some researchers that even in the absence of regulation, organisations will have an incentive to provide credible information about their operations and performance to certain parties outside the organisation; otherwise, the costs of the organisation’s operations will rise. What is the basis of this belief?

Answer 1

Even if there is no regulatory oversight, organizations would still provide crucial accounting/financial information to current and potential investors because in case of no information being given, investors won't have much needed information to decide whether to invest and how much to invest in an organization. Over a period of time, such lack of information will lead to escalating cost of capital as investors will be wary of investing in the organization without knowing how it is operating and how it is performing.