The Effects of Proprietary Information on Corporate Disclosure and Transparency: Evidence from Trade Secrets

Stephen Glaeser, Accounting, The Wharton School

Abstract: I examine the effects of proprietary information on corporate transparency and voluntary disclosure. To do so, I develop and validate two distinct measures of firms’ reliance on trade secrecy: one based on 10-K disclosures and one based on subsequent litigation outcomes. I supplement these measures by using the staggered passage of the Uniform Trade Secrets Act by 48 states and the District of Columbia as a shock to affected firms’ reliance on trade secrecy. I find that firms that begin to rely more heavily on trade secrecy decrease their subsequent disclosure of proprietary information and experience increases in information asymmetry. These firms partially offset the deterioration in their information environment by increasing their disclosure of non-proprietary information.

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