Walking the Line between Reducing Information Asymmetry and Protecting Proprietary Information: the Provision and Attributes of Management Forecasts by Newly Public Firms

62 Pages Posted: 2 Aug 2018 Last revised: 2 Jun 2021

See all articles by Mei Feng

Mei Feng

University of Pittsburgh - Katz Graduate School of Business

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Shane A. Johnson

Texas A&M University - Department of Finance

Zhejia Ling

California State University, Fullerton

Date Written: May 31, 2021

Abstract

This paper investigates the management forecast provision and attributes of firms that redact proprietary information in their IPO filings and thus face an intense tradeoff of protecting their proprietary information yet meeting investors’ information demand. We document that over their first eight quarters post IPOs, redacting firms are as likely to forecast as other IPO firms, consistent with incentives to reduce information asymmetry, but they alter forecast attributes in ways consistent with protecting their proprietary information: they wait longer to issue first forecast, forecast fewer items, forecast less precisely, and avoid forecasting items related to input costs when they redacted supplier contracts. Driven by decreases in proprietary costs and increased incentives to reduce information asymmetry, they also rapidly change their forecast strategy. While redacting firms are less likely to issue forecasts in the first two quarters, they become as likely to forecast by the eighth quarter as non-redacting firms. Our results shed light on how firms attempt to reduce information asymmetry while also shielding proprietary information, and how firms manage their disclosure strategy dynamically.

Keywords: Proprietary information, Management forecasts, Information redaction, Information asymmetry, Initial public offerings

JEL Classification: G14, G30, M41

Suggested Citation

Feng, Mei and Floros, Ioannis V. and Johnson, Shane A. and Ling, Zhejia, Walking the Line between Reducing Information Asymmetry and Protecting Proprietary Information: the Provision and Attributes of Management Forecasts by Newly Public Firms (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3225230 or http://dx.doi.org/10.2139/ssrn.3225230

Mei Feng

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Zhejia Ling

California State University, Fullerton ( email )

Department of Accounting
College of Business and Economic
Fullerton, CA California 92834
United States

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