Proprietary Costs and the Disclosure of Information About Customers

Abstract

In deciding how much information about customers to disclose, firms face a trade-off between the benefits of reducing information asymmetry with capital market participants and the costs of aiding competitors by revealing proprietary information. This paper investigates the determinants of firms’ choices to disclose information about their customers using a comprehensive dataset of firms’ customer-information disclosures over the period 1976-2006. We find that firms facing greater proprietary costs are significantly less likely to voluntarily reveal information about their customers and are significantly more likely to make less informative mandatory disclosures about their customers. These findings offer support for the hypothesis that proprietary costs are an important factor in disclosure choice. We also find that firms significantly increase their voluntary disclosures of customer information in the years immediately prior to conducting seasoned equity offerings consistent with the hypothesis that capital market concerns are also an important factor in disclosure choice.

Keywords: Proprietary Costs, Disclosure, Customers, Competition

JEL Classification: M41, L14