Abstract:

This study explores the mechanism of corporate disclosure governing corporate decisions andin doing so, explains the mixed evidence observed in previous literature. By establishing game theory models of corporate finance and considering the percentage of professional investorsin a company, this study analyses pure strategy Nash equilibrium and mixed strategy Nash equilibrium.It also reveals how information disclosure is indispensable in ensuring the smooth operation of capital markets. The study finds that a smaller proportion of professional investors is associated with greater total social benefit as a result of mandatory corporate disclosure. When the proportion of professional investors is below a certain threshold, mandatory disclosure is necessary to maintain market stability and avoid market failure. Compulsory disclosure causes a greater increase in total social benefit in the following cases: significant differences in return on investment, a larger investment scale, higher financing costs, and a greater non-disclosure penalty.

Key words: public companies, corporate disclosure, professional investor, Nash equilibrium