What Information Do Firms Hide in Confidential SEC Filings?
53 Pages Posted: 2 Aug 2018 Last revised: 23 Aug 2018
Date Written: August 21, 2018
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: Suggested Citation