Nondisclosure – A Good News Signal?

70 Pages Posted: 18 Sep 2020 Last revised: 24 Nov 2020

See all articles by Kyungran Lee

Kyungran Lee

The University of Hong Kong - School of Business

Date Written: March 1, 2019


I examine the implications of nondisclosure in a setting where there is a credible signal of the proprietary nature of the undisclosed information. Specifically, I investigate market and analyst responses to firms’ application to the Securities and Exchange Commission (SEC) for a confidential treatment order (CTO). I find that the market and analysts react favorably to the voluntary nondisclosure of proprietary information using the SEC confidential treatment process. Market and analyst reactions are more favorable to the redaction of information that is more likely to have proprietary value, such as information related to research and development. In addition, I show that the redacting firms experience superior accounting performance compared to that of their peers in the years following the redaction. These findings indicate that a firm’s willingness to submit to the CTO approval process serves as a credible signal of the proprietary nature of the withheld information. The results of this study suggest a possible role for a credible signaling channel to facilitate communication between insiders and outsiders regarding the nature of withheld information.

Keywords: Disclosure; Voluntary Nondisclosure, Redacted Information, Signaling, Proprietary Information, Confidential Treatment Order

JEL Classification: G10, M41

Suggested Citation

Lee, Kyungran, Nondisclosure – A Good News Signal? (March 1, 2019). Available at SSRN: or

Kyungran Lee (Contact Author)

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong

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