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Proprietary versus Non-Proprietary Disclosures: Evidence from Germany

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network


Discretionary disclosure theory suggests that proprietary costs are an important reason why firms often withhold material information. However, empirically testing this hypothesis has proven to be difficult, due especially to the elusive nature of proprietary costs and lack of settings in which proprietary disclosures are voluntary. This paper exploits the fact that that until recently, German firms were not required to disclose business segment reports, which are generally viewed as competitively sensitive and proprietary in nature. Analyzing firms' voluntary business segment disclosures, I find evidence consistent with the proprietary cost hypothesis. As Germany now requires segment reporting by all listed firms, I also examine ex post whether segment reporting is more revealing for those firms that previously chose not to disclose. I find that firms are less likely to voluntarily provide segment reports if segment profitability is more heterogeneous and the average profitability reported in the income statement is less revealing. This finding is also consistent with the proprietary cost hypothesis and shows that segment disclosures are not governed by capital-market considerations alone. I benchmark my findings using voluntary cash flow statement disclosures. In comparison to segment reports, which likely reveal proprietary information to competitors, cash flow statements are less competitively sensitive. I find that cash flow disclosures appear to be governed primarily by capital-market considerations. This finding lends further support to the proprietary cost interpretation of the segment reporting results.

Number of Pages in PDF File: 45

Keywords: Proprietary Costs, Voluntary disclosure, Competitive harm, Disclosure costs, Segment disclosures, Cash flow statements

JEL Classification: M41, M45

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Date posted: April 16, 2004  

Suggested Citation

Leuz, Christian, Proprietary versus Non-Proprietary Disclosures: Evidence from Germany (2003). Available at SSRN: http://ssrn.com/abstract=99861 or http://dx.doi.org/10.2139/ssrn.99861

Contact Information

Christian Leuz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

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National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States

CESifo Research Network
Poschinger Str. 5
Munich, DE-81679

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References:  64
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