Linking Industry Concentration to Proprietary Costs and Disclosure: Challenges and Opportunities

Lang, Mark H.; Sul, Edward

doi:10.2139/ssrn.2481706

Cited by 28 publications

(36 citation statements)

References 33 publications

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“…Overall, our findings speak directly to concerns about the identification and economic significance of proprietary costs and suggest an important role for these costs in practice (e.g., Li et al, 2017;Shroff, 2016;Lang and Sul, 2014;Berger, 2011;Berger and Hann, 2007). Our findings suggest that size management to avoid income statement disclosure is at least as common as that to avoid an audit, evidence that helps to benchmark the significance of proprietary costs and contextualize prior work on size management at audit thresholds (Kausar et al, 2016).…”

Section: Introductionsupporting

confidence: 58%

“…These costs are fundamental in theory (e.g., Verrecchia, 1983). Yet their empirical importance remains an open question (e.g., Lang and Sul, 2014;Bens et al, 2011;Berger, 2011;Beyer et al, 2010;Berger and Hann, 2007).…”

Section: Introductionmentioning

confidence: 99%

“…The European private firm setting also allows us to sidestep many of the endogeneity concerns that bedevil the literature on proprietary costs (e.g., Shroff, 2016;Lang and Sul, 2014;Berger, 2011). Compliance costs, agency costs, and capital market incentives are often important determinants of public disclosure but are largely absent in our setting.…”

Section: Introductionmentioning

confidence: 99%

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Size management by European private firms to minimize proprietary costs of disclosure

Bernard

Burgstahler

Kaya

2018

Journal of Accounting and Economics

121

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We examine size management by European private firms for which disclosure requirements increase at size thresholds. Our estimates suggest at least 8% of firms near thresholds that impose income statement disclosure manage size downward, and the average firm that manages size sacrifices more than 6% of its assets. We find that multiple determinants of proprietary costs predict this behavior, and that size management to avoid mandatory audits, which are similarly imposed at size thresholds, is of comparable magnitude. Our results triangulate the economic significance of proprietary costs in a setting largely without confounding capital market, agency, or compliance costs.

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Section: Introductionsupporting

confidence: 58%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Size management by European private firms to minimize proprietary costs of disclosure

Bernard

Burgstahler

Kaya

2018

Journal of Accounting and Economics

121

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“…Second, these findings represent the first in the empirical proprietary costs literature to consider regulatory disclosure costs in which other regulators’ attention to disclosures imposes a cost to disclosing that information to the investing public. While some of the evidence in proprietary disclosure costs is mixed (see Lang and Sul []), we examine a unique setting in which a very specific cost of disclosure is present (i.e., tax‐based proprietary costs related to the tax authority's use of public tax disclosure). These findings further support the notion of regulatory interaction, in which one regulator's private disclosure requirement increased the public disclosure required by a separate regulator.…”

Section: Resultsmentioning

confidence: 99%

IRS Attention

Bozanic

Hoopes

Thornock

et al. 2016

Journal of Accounting Research

248

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We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. To capture IRS enforcement activities, we introduce a novel data set of IRS acquisition of firms' public financial disclosures, which we label IRS attention. We examine the implementation of two new disclosure requirements that potentially alter IRS attention: FIN 48, which increased public tax disclosure requirements, * The Ohio State University; † University of North Carolina at Chapel Hill; ‡ Brigham Young University; § University of Texas at Austin.Accepted by Douglas Skinner. We are grateful for the insightful suggestions received from an anonymous reviewer. We also appreciate comments from Sam Anderson, Darren Bernard, Terrence Blackburne, Amoray Cragun, Mike Drake, Scott Dyreng, Alex Edwards (ATA discussant), Merle Erickson, Paul Fischer, Pete Frischmann, Kevin Holland (Oxford discussant), Mike Iselin, Colin Koutney, Ed Maydew, Rick Mergenthaler, Lillian Mills, Michelle Nessa (Midwest Conference Discussant), Phil Quinn, Darren Roulstone, Jeri Seidman, Terry Shevlin, Lorien Stice-Lawrence, Erin Towery (FARS discussant), and Jaron Wilde; workshop participants at the University of Chicago, the University of North Carolina, the University of Minnesota, and the University of Texas at Austin; and participants at the 2014 BYU Accounting Symposium, the 2015 AAA FARS Midyear Meeting, the 2015 ATA Midyear Meeting, the 2015 Midwest Summer Research Conference, and the 2016 Oxford Academic Symposium. We are grateful for data assistance from SECLive.com and, in particular, from Slavi Marinov. Thornock is affiliated with SECLive.com as an academic advisor. We gratefully acknowledge financial support from the Fisher College of Business, the Foster School of Business, the Kenan-Flagler Business School, the Marriott School of Management, and the McCombs School of Business. Neither the IRS nor the SEC have provided any of the authors with privileged data for this paper or have reviewed the paper. This work is solely the responsibility of the authors. An online appendix to this paper can be downloaded at http://research.chicagobooth.edu/ arc/journal-of-accounting-research/online-supplements. The IRS attention data are available at http://www.jeffreyhoopes.com/data/irsattentiondata.html. and Schedule UTP, which increased private tax disclosure. We find that IRS attention increased following FIN 48 but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms' public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax-related disclosures, consistent with lower tax-related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, a...

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“…We decided to investigate both questions concurrently, as the answer to each cannot be understood without taking into account the other. Specifically, we differentiate between firm‐ and industry‐level competition measures (Lang and Sul, ) to argue that: i) firm‐level competition dimensions reflect proprietary and agency costs, both of them acting to discourage disclosure (e.g., Berger and Hann, ; Bens et al., ); and ii) global industry competition creates incentives to disclose to deter the entrance of new competitors (e.g., Darrough and Stoughton, ) and to fulfil the owners’ need for information to control managers . In both cases, proprietary and agency conflicts have opposite predictions on disclosure.…”

Section: Introductionmentioning

confidence: 99%

Multidimensional Competition and Corporate Disclosure

Muiño¹,

Nickel

2016

Business Fin & Account

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Abstract:In this paper, we argue that the influence product market competition exerts on disclosure is defined by the combined effect of the incentives and disincentives to disclose raised by the multiple competition dimensions. We distinguish between firm-and industry-level competition measures, and we hypothesize that the former raises agency and proprietary costs, whereas the latter creates incentives to disclose either to fulfil the owners' need for information to monitor managers or to deter the entrance of new competitors in the industry. Our research design allows for non-monotonic relationships between competition and disclosure as well as for interactions between competition dimensions. Using a sample of US manufacturing companies, we gather evidence that is consistent with our hypotheses. First, we find an inverted U-shape relationship between corporate disclosure and a firm's abnormal profitability, which is suggestive of firms being reluctant to disclose when they are underperforming (outperforming) their rivals because of the fear of unveiling agency conflicts (raising proprietary costs). Second, we observe a U-shape relationship between corporate disclosure and industry profitability, although this U design evolves to approximate a rising function as the protection provided by entry barriers increases.

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Linking Industry Concentration to Proprietary Costs and Disclosure: Challenges and Opportunities

Cited by 28 publications

References 33 publications

Size management by European private firms to minimize proprietary costs of disclosure

Size management by European private firms to minimize proprietary costs of disclosure

IRS Attention

Multidimensional Competition and Corporate Disclosure

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