Abstract: Under the framework of principle-agency theory, top managements have incentives to adopt self-interested behaviors which benefit themselves but damage firm value. The information asymmetry is a fundamental cause of these self-interested behaviors. Outside supervision, incentive and information disclosure mechanisms are usually taken as the methods to alleviate the agency problem. Most of the enisting researches focus on just one of these three mechanisms. In this study, a signaling game model is established and the interactions among the information disclosure, incentive system and outside supervision are explored. It is found that under the model without incentive for high quality information disclosure, both types of executives will choose a strategy of lower quality of information disclosure. When an incentive is given to the executives with high quality information disclosure, an efficient separating equilibrium can be reached. That is, an incentive-based information disclosure mechanism will guide outside supervisors to make much more efficient decisions. Based on the setting of the Gold Board Secretary of Chinese listed company, strong empirical supports are offered to our theoretical model.

Key words: signaling game, principal-agent, self-interests, incentive mechanism