Does Voluntary Disclosure Substitute for Mandatory Disclosure? Evidence from Contract Redactions

57 Pages Posted: 16 Jul 2020 Last revised: 13 Apr 2021

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Xiaoli (Shaolee) Tian

Georgetown University - Department of Accounting and Business Law

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: April 1, 2020

Abstract

This study addresses whether firms provide more voluntary disclosures when they redact otherwise mandatorily disclosed contract information and have higher information uncertainty when they redact, and whether the disclosures mitigate this higher uncertainty. Redactions are significantly positively associated with more total, earnings, and non-earnings voluntary disclosures made within 90 days after redaction, and are significantly positively associated with information uncertainty up to 180 days. The disclosures mitigate the higher uncertainty, but do not offset it fully. Regarding contract types, firms provide significantly more disclosures primarily when redactions relate to R&D and license, manufacturing and purchase and sales, and investment contracts, and provide disclosures in anticipation of redactions in R&D and license contracts. We find that the disclosures relating to contract types mitigate the higher information uncertainty associated with redaction. This evidence can inform the SEC in its consideration of the effects on information available to investors of reducing mandatory disclosure.

Keywords: Contract redaction; information uncertainty; voluntary disclosure; mandatory disclosure

JEL Classification: D8; M41; M48

Suggested Citation

Barth, Mary E. and Landsman, Wayne R. and Tian, Xiaoli (Shaolee) and Yu, Miaomiao, Does Voluntary Disclosure Substitute for Mandatory Disclosure? Evidence from Contract Redactions (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3634659 or http://dx.doi.org/10.2139/ssrn.3634659

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Xiaoli (Shaolee) Tian

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

LA 70803-6308
United States

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