Is the Risk of Product Market Predation a Cost of Disclosure?
51 Pages Posted: 21 Apr 2016 Last revised: 2 Dec 2016
Date Written: June 26, 2016
Competitors engage in product market predation when they lower prices or increase expenditures on nonprice competition with the goal of forcing a rival to exit. This study provides evidence that financially constrained firms avoid financial statement disclosure to mitigate predation risk. The empirical tests examine German private firms, most of which failed to comply with financial statement public disclosure requirements until an enforcement change increased noncompliance costs. The evidence shows more financially constrained firms were more likely to avoid disclosure until the change. Results from cross-sectional and supplemental analyses are consistent with predation risk driving this relation.
Keywords: product market predation, proprietary costs, disclosure, private firms
JEL Classification: D49, D82, L11, L41, M41
Suggested Citation: Suggested Citation