Less Is More: Peer Learning from Non-disclosures

Abstract

In this paper, I investigate whether competitors can extract valuable information from peers’ redacted disclosures that might be useful for their future 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 cost concerns. While firms censor contracts to hinder competitor learning, they also reveal to rivals that something valuable is hidden in these contracts. This may result 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 53% more downloads than their unredacted counterparts, indicating greater attention and information demand for censored documents. Consistent with peer learning from redacted disclosures, I also find that firms increase their R&D spending and become more similar to redacting peers. Using two plausibly exogenous shocks, I show that the learning effect attenuates when rival attention is disrupted, suggesting that increased attention to redacted disclosures might be a potential mechanism that explains peer learning. My study contributes to the literature on corporate investment under uncertainty and provides insight into the underlying mechanisms of peer learning documented in the literature.

Mustafa Ahçı

Assistant Professor of Accounting

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