Industry Concentration and Corporate Disclosure Policy
42 Pages Posted: 18 Aug 2008 Last revised: 24 Oct 2010
Date Written: April 25, 2010
Using industry concentration measures constructed by the U.S. Census Bureau, we provide evidence on the theoretical prediction that because in more concentrated industries proprietary costs of disclosure are greater incumbents in such industries prefer less informative disclosure policies. Consistent with this prediction, we find that firms in more concentrated industries provide less frequent management earnings forecasts, their forecasts have shorter horizons, they receive lower disclosure ratings from analysts, and they have more opaque information environments. 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 get around having to disclose significant details about their acquisitions by acquiring private targets. Finally, we document that our results are more pronounced for younger industries, where proprietary costs from disclosure are likely to be greater, but less pronounced for industries with higher leverage, in which firms are expected to be constrained in their ability to invest in market share building. Overall, our findings suggest that firms’ attempts to avoid providing rivals with strategically valuable information impact corporate disclosure policy and other major corporate financial policy decisions.
JEL Classification: M41, M45, L13, G29, G32, D82
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