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

Stephen Glaeser, Accounting, The Wharton School

Abstract: I develop and validate a measure of firms that claim to have a trade secret as a proxy for firms with proprietary information. Trade secret firms rely less on patent protections to protect the value of their innovation. I find that firms that begin relying on trade secrecy decrease their subsequent disclosure of proprietary information and experience increases in information asymmetry. These firms partially offset these adverse effects by increasing their disclosure of nonproprietary information. My results are robust to using the staggered passage of the Uniform Trade Secrets Act by 48 states and the District of Columbia as a shock to trade secrecy.