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Discretionary Disclosure of Proprietary Information in a Multisegment Firm

Author

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  • Anil Arya

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Hans Frimor

    (School of Economics and Management, Aarhus University, DK-8000 Aarhus C, Denmark)

  • Brian Mittendorf

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

Abstract

The seminal "unraveling" result in the disclosure literature posits that discretion inevitably leads to full disclosure, even when such disclosure has detrimental consequences. In this paper, we revisit optimal disclosure of proprietary information when firms compete in multiple markets. The analysis demonstrates that in the presence of multiple segments, the unraveling result applies at the firmwide level but not necessarily segment by segment. Instead, when the firm has an ex ante desire to withhold information and segments are sufficiently similar, the ex post disclosure equilibrium entails aggregation of segment details. Aggregation arises because any ex post temptation to disaggregate and reveal particularly favorable news in one segment entails revealing unfavorable news in another segment. A desire to balance profits across segments then leads a firm to disclose firmwide information (a temptation that cannot be avoided), but only in the aggregate.

Suggested Citation

  • Anil Arya & Hans Frimor & Brian Mittendorf, 2010. "Discretionary Disclosure of Proprietary Information in a Multisegment Firm," Management Science, INFORMS, vol. 56(4), pages 645-658, April.
  • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:4:p:645-658
    DOI: 10.1287/mnsc.1090.1126
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    References listed on IDEAS

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    Cited by:

    1. Kin-Wai Lee & Gillian Hian-Heng Yeo, 2016. "The association between integrated reporting and firm valuation," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1221-1250, November.
    2. Sandro Gleave & Eberhard Feess, 2016. "Fixed fee licensing for cost-reducing technologies: Should innovators reveal their private information?," Review of Managerial Science, Springer, vol. 10(4), pages 781-799, October.
    3. Brian Mittendorf & Jiwoong Shin & Dae-Hee Yoon, 2013. "Manufacturer marketing initiatives and retailer information sharing," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 263-287, June.
    4. Romana L. Autrey & Francesco Bova & David A. Soberman, 2014. "Organizational Structure and Gray Markets," Marketing Science, INFORMS, vol. 33(6), pages 849-870, November.
    5. Ruomeng Cui & Hyoduk Shin, 2018. "Sharing Aggregate Inventory Information with Customers: Strategic Cross-Selling and Shortage Reduction," Management Science, INFORMS, vol. 64(1), pages 381-400, January.
    6. Kazunori Miwa, 2021. "An Experimental Study on Information Acquisition and Disclosure in a Cournot Duopoly Market," Discussion Papers in Economics and Business 13-01-Rev, Osaka University, Graduate School of Economics.
    7. Brian Mittendorf & Jiwoong Shin & Dae-Hee Yoon, 2013. "Manufacturer marketing initiatives and retailer information sharing," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 263-287, June.
    8. Eti Einhorn & Nisan Langberg & Tsahi Versano, 2018. "Cross‐Firm Real Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 56(3), pages 883-911, June.
    9. Kazunori Miwa, 2016. "Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets," Discussion Paper Series DP2016-17, Research Institute for Economics & Business Administration, Kobe University.

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