Industry Concentration and Corporate Disclosure Policy

Abstract:     
We examine the effect of industry concentration on the informativeness of corporate disclosure policy. We find that in more concentrated industries, firms’ management earnings forecasts are less frequent and have shorter horizons, their disclosure ratings by analysts are lower, and they have more opaque information environments, as measured by the properties of analysts’ earnings forecasts. Also, when these firms raise funds they prefer private placements, which have minimal SEC-mandated disclosure requirements, over seasoned equity offerings. Likewise, when these firms engage in takeovers they tend to acquire small private targets, enabling them to avoid disclosure of significant details about their acquisitions. Additionally, we document that all our findings are more pronounced for younger industries, where proprietary costs of disclosure are likely to be higher due to greater innovation, but are less pronounced for industries with higher leverage, where rival firms are likely to be constrained in their ability to invest in market share building and would therefore not react aggressively to new information. Overall, our findings suggest that industry concentration impacts firms’ disclosure policy as well as certain financing and investment decisions that have non-trivial disclosure implications.

Number of Pages in PDF File: 47

Keywords: Disclosure Policy, Oligopoly, Industry Concentration

JEL Classification: M41, L13, G29, G32, G34, D82

working papers series