Life Cycles of Firm Disclosures

Abstract

We propose that the product life cycle is important in understanding firm disclosure policies and test this hypothesis using a 4-dimensional text-based life cycle model. Mature-stage firms disclose more, consistent with lowering search costs for an outward-focused investment strategy seeking synergistic partners. Early-stage life cycle firms are secretive, consistent with inward-focused organic investment and mitigating competitive threats. These results obtain across disclosure measures relating to intellectual property, redaction of contracts, readability, and conference calls. A quasi-natural experiment based on waves of rapid depreciation of protected intellectual property, and internet co-search tests targeting specialized sender and receiver hypotheses, reinforce this interpretation.

Keywords: Disclosures, Life-Cycle, Investment, Competition, Patents, Redaction, EDGAR Search

JEL Classification: D83, E22, G34, L15, M41