Less Is More: Peer Learning from Nondisclosures

Abstract

I investigate whether competitors can extract valuable insights from the redacted disclosures of peers, impacting their strategic investment decisions. The US Securities and Exchange Commission requires US public firms to disclose their material agreements while allowing them to redact/censor parts of these contracts due to proprietary reasons. While firms censor contracts to hinder competitor learning, they also reveal to rivals that something valuable is hidden in these contracts, resulting in a stronger motive for rivals to unravel the information concealed in these contracts. Using the EDGAR log files, I find that redacted material agreements receive up to 57% more downloads than their unredacted counterparts, indicating greater attention and information demand for redacted documents. Reflecting learning from redacted disclosures, firms align their product portfolios with redacting peers over time, indicating a shift towards similar markets. Employing exogenous CEO departures as firm-specific attention shocks, I document a diminished peer learning effect, underscoring focused attention as a key mechanism for interpreting redacted disclosures. Anticipating the attention mechanism at play, redacting firms seem to further obfuscate the disclosures of redacted contracts, intensifying the complexity of the learning process for competitors. Overall, the study contributes to the literature on peer effects and provides insights into firms’ strategic disclosure practices and their interplay with disclosure processing costs.

Mustafa Ahçı

Assistant Professor of Accounting

My research interests include corporate disclosures, corporate innovation, capital markets.