Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures

68 Pages Posted: 25 Apr 2019 Last revised: 4 May 2020

See all articles by Philip G. Berger

Philip G. Berger

University of Chicago - Booth School of Business

Jung Ho Choi

Stanford University Graduate School of Business

Sorabh Tomar

Southern Methodist University (SMU) - Accounting Department

Date Written: April 24, 2020

Abstract

Financial accounting affords considerable discretion to firms in aggregating internal information for external dissemination, yet little evidence exists about the consequences of such aggregation. We examine a central operational effect by studying whether withholding disaggregated cost information affects productivity. We hypothesize that, by withholding, a firm protects its productivity advantages from rivals. Using a rule change in Korea that allowed firms to withhold previously mandated Cost of Sales disaggregation, we find withholding firms’ productivity subsequently increases (relative to disclosers’). We then investigate the mechanism and show non-disclosers have cost structures distinct from those of their peers. Such distinctiveness leads to higher productivity only once firms gain disclosure flexibility. At the aggregate level, greater withholding increases productivity dispersion within industries, further consistent with nondisclosure increasing informational frictions between firms about their cost structures. Overall, our findings indicate disaggregated cost information is valuable to firms and their competitors and has productivity consequences.

Keywords: Competition, Disaggregated Cost Disclosure, Cost structure, Productivity, Productivity dispersion, Proprietary costs, Voluntary disclosure

JEL Classification: D40, D80, L15, M40

Suggested Citation

Berger, Philip G. and Choi, Jung Ho and Tomar, Sorabh, Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures (April 24, 2020). Stanford University Graduate School of Business Research Paper No. 19-23, Available at SSRN: https://ssrn.com/abstract=3358435 or http://dx.doi.org/10.2139/ssrn.3358435

Philip G. Berger

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Jung Ho Choi (Contact Author)

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)721-8434 (Phone)

Sorabh Tomar

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

United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
222
Abstract Views
1,486
rank
149,716
PlumX Metrics