IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v68y2022i11p8483-8505.html
   My bibliography  Save this article

Proprietary Costs and Corporate Lobbying Against Changes in Mandatory Disclosure

Author

Listed:
  • Ying Zhou

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

Abstract

The mandated increase in segment disaggregation under SFAS 131 could have harmed shareholders by revealing proprietary information or benefited them by reducing agency problems. Using a sample of firms that lobbied against SFAS 131 on the grounds of competitive harm, I examine whether concerns about proprietary costs, a much-cited reason for nondisclosure, motivate firms to lobby against reporting mandates to protect firms’ competitive position or are used as an excuse to disguise managers’ self-interest. Consistent with the proprietary cost hypothesis, I find that these lobbying firms experienced a decrease in operating performance upon adoption of SFAS 131. I find similar results for nonlobbying firms whose industry associations voiced concern of competitive harm, suggesting that associations are motivated by member concerns to lobby in accounting standard setting. The effect is more pronounced for firms that were forced to increase the number of reportable segments to a greater extent. Moreover, the reduced operating performance arises from lower sales growth and smaller profit margins. These findings shed light on lobbying motives and suggest that concerns about the competitive harm of reporting mandates were warranted.

Suggested Citation

  • Ying Zhou, 2022. "Proprietary Costs and Corporate Lobbying Against Changes in Mandatory Disclosure," Management Science, INFORMS, vol. 68(11), pages 8483-8505, November.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:11:p:8483-8505
    DOI: 10.1287/mnsc.2021.4290
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2021.4290
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2021.4290?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. S.P. Kothari & Karthik Ramanna & Douglas J. Skinner, 2009. "Implications for GAAP from an Analysis of Positive Research in Accounting," Harvard Business School Working Papers 09-137, Harvard Business School, revised Sep 2010.
    2. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
    3. Lo, Kin, 2003. "Economic consequences of regulated changes in disclosure: the case of executive compensation," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 285-314, August.
    4. Dechow, PM & Hutton, AP & Sloan, RG, 1996. "Economic consequences of accounting for stock-based compensation," Journal of Accounting Research, Wiley Blackwell, vol. 34, pages 1-20.
    5. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    6. Ramanna, Karthik, 2008. "The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 253-281, August.
    7. Philip G. Berger & Rebecca Hann, 2003. "The Impact of SFAS No. 131 on Information and Monitoring," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 163-223, May.
    8. Ettredge, Michael & Kwon, Soo Young & Smith, David, 2002. "Security Market Effects Associated with SFAS No. 131: Reported Business Segments," Review of Quantitative Finance and Accounting, Springer, vol. 18(4), pages 323-344, June.
    9. Tony Kang & Inder K. Khurana & Changjiang Wang, 2017. "International Diversification, SFAS 131 and Post†Earnings†Announcement Drift," Contemporary Accounting Research, John Wiley & Sons, vol. 34(4), pages 2152-2178, December.
    10. Wagenhofer, Alfred, 1990. "Voluntary disclosure with a strategic opponent," Journal of Accounting and Economics, Elsevier, vol. 12(4), pages 341-363, March.
    11. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    12. Hayes, RM & Lundholm, R, 1996. "Segment reporting to the capital market in the presence of a competitor," Journal of Accounting Research, Wiley Blackwell, vol. 34(2), pages 261-279.
    13. Feng Li & Russell Lundholm & Michael Minnis, 2013. "A Measure of Competition Based on 10‐K Filings," Journal of Accounting Research, Wiley Blackwell, vol. 51(2), pages 399-436, May.
    14. Harris, MS, 1998. "The association between competition and managers' business segment reporting decisions," Journal of Accounting Research, Wiley Blackwell, vol. 36(1), pages 111-128.
    15. Young Jun Cho, 2015. "Segment Disclosure Transparency and Internal Capital Market Efficiency: Evidence from SFAS No. 131," Journal of Accounting Research, Wiley Blackwell, vol. 53(4), pages 669-723, September.
    16. Darrough, Masako N. & Stoughton, Neal M., 1990. "Financial disclosure policy in an entry game," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 219-243, January.
    17. Vishal P. Baloria & Carol A. Marquardt & Christine I. Wiedman, 2017. "A Lobbying Approach to Evaluating the Whistleblower Provisions of the Dodd†Frank Reform Act of 2010," Contemporary Accounting Research, John Wiley & Sons, vol. 34(3), pages 1305-1339, September.
    18. Ross Watts, 2006. "What has the invisible hand achieved?," Accounting and Business Research, Taylor & Francis Journals, vol. 36(S1), pages 51-61.
    19. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
    20. Grossman, S J & Hart, O D, 1980. "Disclosure Laws and Takeover Bids," Journal of Finance, American Finance Association, vol. 35(2), pages 323-334, May.
    21. Kothari, S.P. & Ramanna, Karthik & Skinner, Douglas J., 2010. "Implications for GAAP from an analysis of positive research in accounting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 246-286, December.
    22. Preeti Choudhary & Shivaram Rajgopal & Mohan Venkatachalam, 2009. "Accelerated Vesting of Employee Stock Options in Anticipation of FAS 123‐R," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 105-146, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Young Jun Cho, 2015. "Segment Disclosure Transparency and Internal Capital Market Efficiency: Evidence from SFAS No. 131," Journal of Accounting Research, Wiley Blackwell, vol. 53(4), pages 669-723, September.
    2. Núñez-Nickel, Manuel & Gago Rodríguez, Susana, 2010. "Evolutionary model of existing competition and voluntary disclosure," INDEM - Working Paper Business Economic Series id-10-06, Instituto para el Desarrollo Empresarial (INDEM).
    3. Richard Frankel & Joshua Lee & Zawadi Lemayian, 2018. "Proprietary costs and sealing documents in patent litigation," Review of Accounting Studies, Springer, vol. 23(2), pages 452-486, June.
    4. Daniel Aobdia, 2018. "Employee mobility, noncompete agreements, product-market competition, and company disclosure," Review of Accounting Studies, Springer, vol. 23(1), pages 296-346, March.
    5. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    6. MuiChing Chan & John Watson, 2011. "Voluntary Disclosure of Segment Information in a Regulated Environment: Australian Evidence," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 1(1), pages 37-53, June.
    7. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    8. Ana Gisbert & Begoña Navallas & Domi Romero, 2014. "Proprietary costs, governance and the segment disclosure decision," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 733-763, August.
    9. Jesse A. Ellis & C. Edward Fee & Shawn E. Thomas, 2012. "Proprietary Costs and the Disclosure of Information About Customers," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 685-727, June.
    10. Stephan Hollander & Maarten Pronk & Erik Roelofsen, 2010. "Does Silence Speak? An Empirical Analysis of Disclosure Choices During Conference Calls," Journal of Accounting Research, Wiley Blackwell, vol. 48(3), pages 531-563, June.
    11. Konrad Lang, 2018. "Voluntary Disclosure and Analyst Forecast," European Accounting Review, Taylor & Francis Journals, vol. 27(1), pages 23-36, January.
    12. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    13. Arya, Anil & Mittendorf, Brian, 2013. "Discretionary disclosure in the presence of dual distribution channels," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 168-182.
    14. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    15. 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.
    16. Praveen Kumar & Nisan Langberg & K. Sivaramakrishnan, 2012. "Voluntary Disclosures, Corporate Control, and Investment," Journal of Accounting Research, Wiley Blackwell, vol. 50(4), pages 1041-1076, September.
    17. Denise A. Jones, 2007. "Voluntary Disclosure in R&D†Intensive Industries," Contemporary Accounting Research, John Wiley & Sons, vol. 24(2), pages 489-522, June.
    18. Einhorn, Eti, 2007. "Voluntary disclosure under uncertainty about the reporting objective," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 245-274, July.
    19. Art Durnev & Claudine Mangen, 2009. "Corporate Investments: Learning from Restatements," Journal of Accounting Research, Wiley Blackwell, vol. 47(3), pages 679-720, June.
    20. Luminita Enache & Antonio Parbonetti & Anup Srivastava, 2020. "Are all outside directors created equal with respect to firm disclosure policy?," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 541-577, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:68:y:2022:i:11:p:8483-8505. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.