Do Firms Foresee Proprietary Cost of Mandatory Public Disclosures?
Research Robin Litjens covered by Duke University blog
This research focusses on whether firms are able to foresee proprietary cost of mandatory disclosure. Regulation mandating public disclosures by firms does not come without cost. Surveying managers' beliefs reveals that one of the most important costs is a perceived loss of competitive advantage arising from disclosing proprietary information (i.e., proprietary cost). However, it is not clear to what extent firms can foresee how substantial the proprietary cost of mandatory disclosures is. In our research, we utilize a supply and demand model to test whether firms foresee proprietary costs. We focus on private firms in the Netherlands, where proprietary cost appears to be the primary driver for both a firm's public disclosure decision and the subsequent demand for these disclosures. Our analysis shows that firms faced with higher proprietary costs delay public disclosure by 10% (from 280 to 307 days), and subsequent paid demand for these disclosures arises almost 27% earlier (from 382 to 279 days). We continue our economic analysis by testing whether greater paid demand for proprietary information subsequently has real economic effects in the three years after demand. We find that firms that file profit and loss information with more (less) timely demand subsequently experience on average a 10% decrease in firm profitability and are more (less) likely to engage in patent protection and face higher (lower) merger and acquisition probability. In sum, proprietary costs of mandatory public disclosure appear economically significant and results in real economic effects.