To Redact or Not to Redact?

Abstract

This study shows that firms respond to their product-market peers’ decisions of redacting information using a large sample of confidential treatment orders that are mandatorily filed to redact information. I find evidence that firms increase their confidential treatment orders, but not other voluntary disclosures, in response to peers' decisions of redacting information. I also find that firms do not alter their earnings management and their analyst information production does not respond to peer firms’ confidential treatment orders. These findings confirm that a firm's action of redacting proprietary information crowds in another firm's redaction in disclosure. Last, I find that peer firms may benefit from information spillover in the focal firm's confidential treatment order; therefore, peer firms may strategically file confidential treatment orders to trigger a focal firm's confidential treatment order.

Keywords: Redaction, Mandatory Disclosure, Voluntary Disclosure, Information Spillover, Information Environments

JEL Classification: D82, G14, G30, G38, M41