Do companies redact material information from confidential SEC filings?
59 Pages Posted: 2 Aug 2018 Last revised: 24 Aug 2020
Date Written: August 21, 2020
U.S. public companies can redact information from required material contracts disclosures when
management asserts that the information is immaterial and would cause competitive harm if
publicly disclosed (i.e., it is proprietary). This study examines whether managers use this channel
to withhold material information from investors. We find that firms’ stock price discovery process
is significantly slower and insider trading is significantly greater after companies file redacted
contracts compared with non-redacted contracts. Using data obtained under the Freedom of
Information Act, we find that redacted material contracts withhold both quantitative and qualitative
information and redacted information is predictably associated with insider trading. These findings
suggest that at least some information redacted in material contracts is material to investors.
Keywords: Redaction, Confidential treatment, Insider trading, Proprietary cost, Agency cost
JEL Classification: M41
Suggested Citation: Suggested Citation