Protection of Proprietary Information and Financial Reporting Opacity: Evidence from a Natural Experiment
Posted: 17 Jan 2018 Last revised: 1 Aug 2018
Date Written: February 1, 2018
We utilize the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts as an exogenous shock to the proprietary costs of disclosure, and study the impact of the IDD on corporate financial reporting policy. We find compelling evidence that firms headquartered in states that adopt the IDD exhibit a significant increase in financial reporting opacity relative to firms headquartered in states that fail to adopt the IDD. Our finding is robust to a battery of sensitivity tests. Further evidence shows that the impact of the IDD on opacity is more pronounced for firms with weak external monitoring and firms operating in competitive product markets.
Keywords: proprietary information; corporate financial reporting policy; natural experiment
JEL Classification: G34; K31; M41; P23
Suggested Citation: Suggested Citation