Linking industry concentration to proprietary costs and disclosure: Challenges and opportunities

Lang, Mark H.; Sul, Edward

doi:10.1016/j.jacceco.2014.08.008

Cited by 114 publications

(34 citation statements)

References 23 publications

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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 [2014]), 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%

“…Bhojraj, Blacconiere, and D'Souza [2004] label this disclosure challenge a "multi-audience problem." In most prior research, proprietary costs are the predominant form of disclosure costs and arise because a competitor might use the proprietary information contained in public disclosures (Verrecchia [1983], Beyer et al [2010], Lang and Sul [2014]). However, noncompetitor audiences, such as a tax authority, can also impose disclosure costs on the firm.…”

Section: Requirementsmentioning

confidence: 99%

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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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Section: Resultsmentioning

confidence: 99%

Section: Requirementsmentioning

confidence: 99%

IRS Attention

Bozanic

Hoopes

Thornock

et al. 2016

Journal of Accounting Research

248

View full text Add to dashboard Cite

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“…A related challenge plaguing this literature is that the information disclosed by firms is often not merely or not even majorly relevant for competitors. For instance, while management earnings forecasts are informative to investors, it is unclear what specific competitive advantage a firm sacrifices in disclosing earnings forecasts shortly before the actual earnings announcements (Lang and Sul [2014]).…”

Section: Introductionmentioning

confidence: 99%

Trade Secrets Law and Corporate Disclosure: Causal Evidence on the Proprietary Cost Hypothesis

Lin

Zhang

2017

J of Accounting Research

245

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This study exploits the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts as an exogenous shock that generates variations in the proprietary costs of disclosure. We find that firms respond to IDD adoption by reducing the level of disclosure regarding their customers' identities, supporting the proprietary cost hypothesis. Our results are stronger for firms in industries with a higher degree of entry threats, for firms in more volatile industries, and for firms with a lower degree of external financing dependence. Overall, this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure. JEL codes: D82; D83; K11; L1; M41

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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, 2014) 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, 2007;Bens et al, 2011); and ii) global industry competition creates incentives to disclose to deter the entrance of new competitors (e.g., Darrough and Stoughton, 1990) and to fulfil the owners' need for information to control managers. 1 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 114 publications

References 23 publications

IRS Attention

IRS Attention

Trade Secrets Law and Corporate Disclosure: Causal Evidence on the Proprietary Cost Hypothesis

Multidimensional Competition and Corporate Disclosure

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