Working Papers:
“Cooperative Strategic Disclosure” (Dissertation)
Committee: Jaewoo Kim (Co-Chair), Brady Twedt (Co-Chair), Kyle Peterson, and Van Kolpin
Abstract: Recent research finds that firms use disclosure to weaken their competitors. However, I hypothesize that in settings with repeated interactions and strong cooperation incentives, firms will instead strategically use disclosure to strengthen their competitors. In support of this hypothesis, I find that unionized firms disclose bad news about their own financial outlooks to increase their unionized peers’ bargaining power during labor negotiations. Consistent with game theory predictions, I further find that this peer-strengthening disclosure appears to be based on reciprocity and concentrated in firms facing credible and severe threats of retaliation, as well as firms poised to benefit more from cooperation. These findings provide novel evidence that firms use disclosure to strengthen their competitors under certain circumstances, broadening our understanding of firms’ strategic disclosure incentives.
“Real Externalities of Mandatory Disclosure” (with Jaewoo Kim and Brady Twedt – Revising for 2nd round at Contemporary Accounting Research)
Abstract: Theory posits opposing effects of mandatory disclosure on peer firms’ learning from stock prices – intra-industry information transfers predict a negative effect, while information substitution predicts a positive effect. Using mandatory segment disclosure as our setting, we document a decrease in investment-q sensitivity for peers of disclosing firms. This effect is stronger among peers with greater economic links to disclosing firms and peers with the greatest incentives to glean information from price. Our findings provide novel evidence that mandatory disclosure can have significant negative externalities on peer firms’ investment efficiency via information transfer.
“Do Managers View Mandatory Segment Disclosure and Voluntary Earnings Guidance as Complements or Substitutes?” (with Zackery Fox, Jaewoo Kim, and Kyle Peterson)
Abstract: This study explores the relation between mandatory segment disclosure and firms’ voluntary earnings guidance. We find that firms affected by mandatory segment disclosure under Statement of Financial Accounting Standards (SFAS) 131 exhibit a greater increase in management earnings forecasts compared to unaffected firms. We further show the increase is more pronounced among affected firms experiencing a greater increase in the level of disaggregation in their segment disclosure than those experiencing a modest increase. In contrast, the increase is moderated for firms facing higher proprietary and reputation costs. The results suggest that managers use aggregated, forward-looking earnings guidance as complementary to disaggregated, historical segment disclosure. We also show that the decrease in illiquidity and informed trading following SFAS 131 documented in prior research is driven by affected firms that also increase their earnings guidance, highlighting the need to understand potential disclosure complementarities when evaluating the effects of mandatory disclosure.