Corporate Responses to Increased Disclosure Requirements

Abstract

This paper shows that greater disclosure requirements may induce firms to reduce strictly their value relevant disclosures. In the absence of segment reporting requirements, an incumbent firm may voluntarily disclose value relevant information because it can use other, value irrelevant, information to jam proprietary disclosures. However, when required to disclose segment data, the incumbent may have to aggregate proprietary information with other value relevant information to avoid proprietary disclosures. This results in the firm not disclosing value relevant information which it would otherwise have revealed voluntarily. Thus, a standard setter can actually decrease the price efficiency by requiring more disaggregate disclosures.

JEL Classification: G41