Does Voluntary Disclosure Substitute for Mandatory Disclosure? Evidence from Contract Redactions
43 Pages Posted: 16 Jul 2020
Date Written: April 2020
This study addresses whether firms provide more voluntary disclosures if they redact otherwise mandatorily disclosed contract information, whether firms have higher information uncertainty after they redact, and, if so, the extent to which this higher uncertainty is mitigated by the disclosures. Redactions are significantly positively associated with more earnings, non-earnings, and total voluntary disclosures made within 90 days after the redaction, but not before. The significant association mostly is attributable to research and development and license contracts, which suggests unredacted contracts of this type have more proprietary information. Redactions are significantly positively associated with information uncertainty for up to 180 days after the redactions. Although the disclosures mitigate the higher uncertainty, they do not offset it fully. This evidence can be informative to the SEC in its consideration of the effects of reducing mandatory disclosure on information available to investors.
Keywords: contract redaction; information uncertainty; voluntary disclosure; mandatory disclosure
JEL Classification: D8; M41; M48
Suggested Citation: Suggested Citation