Walking the Line between Reducing Information Asymmetry and Protecting Proprietary Information: the Provision and Attributes of Management Forecasts by Newly Public Firms

Abstract

This paper investigates the management forecast provision and attributes of firms that redact proprietary information in their IPO filings and thus face an intense tradeoff of protecting their proprietary information yet meeting investors’ information demand. We document that over their first eight quarters post IPOs, redacting firms are as likely to forecast as other IPO firms, consistent with incentives to reduce information asymmetry, but they alter forecast attributes in ways consistent with protecting their proprietary information: they wait longer to issue first forecast, forecast fewer items, forecast less precisely, and avoid forecasting items related to input costs when they redacted supplier contracts. Driven by decreases in proprietary costs and increased incentives to reduce information asymmetry, they also rapidly change their forecast strategy. While redacting firms are less likely to issue forecasts in the first two quarters, they become as likely to forecast by the eighth quarter as non-redacting firms. Our results shed light on how firms attempt to reduce information asymmetry while also shielding proprietary information, and how firms manage their disclosure strategy dynamically.

Keywords: Proprietary information, Management forecasts, Information redaction, Information asymmetry, Initial public offerings

JEL Classification: G14, G30, M41