Breaking it Down: Competitive Costs of Cost Disclosures

54 Pages Posted: 25 Apr 2019 Last revised: 9 Jul 2019

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: June 9, 2019

Abstract

Does decomposing cost of goods sold entail significant competitive costs? We examine this question using a relaxation of disaggregated manufacturing cost disclosure requirements in Korea. Our survey evidence indicates managers perceive these disclosures to provide a competitive edge to competitors. Using archival data, we find firms with distinctive cost structures and high market shares are less willing to disclose, consistent with a desire to protect cost-leadership advantages embedded in production and sourcing. Firms experience higher gross profits and lower liquidity after withholding manufacturing cost details, suggesting these disclosure decisions involve trading off competitive costs (and not managers’ self-interests) against capital market benefits. At the aggregate level, industries with more nondisclosing firms subsequently experience greater profitability dispersion, suggesting uncertainty about competitors’ cost of goods sold helps drive the widely studied performance dispersion observed within industries.

Keywords: Competition, Disaggregated Cost Disclosure, Manufacturing Cost Structure, Profitability Dispersion, Proprietary Cost, Voluntary Disclosure

JEL Classification: D40, D80, L15, M40

Suggested Citation

Berger, Philip G. and Choi, Jung Ho and Tomar, Sorabh, Breaking it Down: Competitive Costs of Cost Disclosures (June 9, 2019). 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

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