What Information Do Firms Hide in Confidential SEC Filings?

53 Pages Posted: 2 Aug 2018 Last revised: 23 Aug 2018

See all articles by Anne Thompson

Anne Thompson

University of Illinois at Urbana-Champaign

Oktay Urcan

University of Illinois at Urbana-Champaign

Hayoung Yoon

Southern Methodist University (SMU) - Accounting Department

Date Written: August 21, 2018

Abstract

Publicly traded companies in the United States can request confidential treatment from the Securities and Exchange Commission (SEC) to withhold information from investors that management asserts would cause competitive harm if publicly disclosed. This study examines the nature and materiality of the information granted confidential treatment by the SEC. Using data obtained under the Freedom of Information Act, we find that redacted material contracts withhold net favorable versus unfavorable news in approximately equal proportions. Redacted favorable versus unfavorable information is predictably associated with insider purchases and some types of unfavorable redactions are associated with significantly negative long-window stock returns. These findings suggest that at least some information the SEC approves for confidential treatment is material in the aggregate. However, combining net favorable and unfavorable material supply chain contracts reflects “no news” on average. Thus, diversified investors are unlikely to be impacted by managers’ decisions to redact information.

Keywords: Redaction, Confidential treatment, Insider trading, Proprietary cost, Agency cost

JEL Classification: M41

Suggested Citation

Thompson, Anne and Urcan, Oktay and Yoon, Hayoung, What Information Do Firms Hide in Confidential SEC Filings? (August 21, 2018). Available at SSRN: https://ssrn.com/abstract=3224697 or http://dx.doi.org/10.2139/ssrn.3224697

Anne Thompson (Contact Author)

University of Illinois at Urbana-Champaign ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States

Oktay Urcan

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

Hayoung Yoon

Southern Methodist University (SMU) - Accounting Department ( email )

United States

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