The Effect of Product Market Competition on Mandatory Disclosure Withholding Strategy: Evidence from SEC Comment Letter

초록

This study examines how product market competition affects firms' mandatory disclosure withholding strategy. Using the SEC comment letters, we find that firms in a highly competitive market are more likely to withhold information in unaudited mandatory disclosures. This finding supports the conjecture that firms exercise discretion in the voluntary elements of mandatory disclosure less transparently due to a proprietary cost resulting from market competition. We also mitigate endogeneity concerns by employing an instrumental variable approach. The relationship between product market competition and mandatory disclosure withholding strategy is stronger for firms facing higher competition from potential entrants or industry followers. In addition, we also find evidence that firms with such a disclosure strategy are associated with higher sales and market share growth in the subsequent year.