Operational Uncertainty and Managerial Incentives in Information Production

46 Pages Posted: 1 Nov 2016 Last revised: 10 Nov 2016

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Lai Wei

Lingnan University - Department of Finance and Insurance

Haibin Wu

City University of Hong Kong (CityUHK)

Date Written: November 1, 2016

Abstract

This paper examines how operational uncertainty affects managerial incentives in information production using the staggered recognition of Inevitable Disclosure Doctrine (IDD) by state courts as a quasi-natural experiment. The adoption of IDD improves the protection of trade secrets by preventing former employees from working for competitor firms and results in exogenous variation in operational uncertainty. We find that after the adoption of IDD by their headquarter states, firms tend to produce more information of higher quality, in the form of more frequent, precise and informative management earnings guidance with longer durations. Furthermore, the results are more pronounced for firms with higher innovation intensity and higher litigation risk. Overall, our findings suggest that operational uncertainty constrains corporate management’s incentives to produce information to outsiders, and better protection of trade secrets due to IDD adoption greatly alleviates this constraint.

Suggested Citation

Lin, Chen and Wei, Lai and Wu, Haibin, Operational Uncertainty and Managerial Incentives in Information Production (November 1, 2016). Available at SSRN: https://ssrn.com/abstract=2862362 or http://dx.doi.org/10.2139/ssrn.2862362

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Lai Wei

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Haibin Wu

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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