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

56 Pages Posted: 2 Aug 2018 Last revised: 15 Aug 2018

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: August 15, 2018

Abstract

Firms that redact proprietary information in their IPO filings bear significant costs to shield that information, and yet we find that the majority choose voluntary disclosure via management forecasts. They modify the characteristics of their forecasts in ways that plausibly attempt to reduce information asymmetry while still protecting their proprietary information. Specifically, they forecast fewer items, avoid quarterly forecasts, and avoid forecasting expenses when they have redacted information in supplier contracts. We also find rapid changes in forecasting strategy for redacting firms, going from being significantly less likely to forecast in their first two quarters as public firms to being no less likely to forecast than non-redacting firms by the eighth quarter. Our results shed light on how firms shield proprietary information while also attempting to reduce information asymmetry, and how firms manage their disclosure strategy dynamically as external and internal factors that affect their proprietary costs and information asymmetry concerns evolve.

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: Management Forecasts by Newly Public Firms (August 15, 2018). 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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