A firm provides voluntary disclosures to the financial market in order to guide the valuation of its shares by mitigating adverse selection. However, voluntary disclosures could cause detriment to the disclosing firm's prospects, as the firm's competitors in the product market observe the disclosures. Prior analytical research has conflicting positions about the role of product market competition in voluntary disclosure. One view (Verrecchia 1983) is that competitive disadvantage resulting from the existence of proprietary costs discourages firms in high competition industries from providing voluntary disclosures. Another view (Darrough and Stoughton 1990) is that firms provide voluntary disclosures to deter potential rivals from entering the industry. This paper examines the association between voluntary disclosure and product market competition after controlling for firm size, analyst following, firm performance, and access to external financing. It looks at disclosures in press releases, an issue that is relatively unexplored, even though press releases have become one of the most important channels of communication in the United States. A total of 5,587 press releases by 156 U.S. firms in 1998 are studied. Product market competition is measured by the Herfindahl- Hirschman Index. It is found that the firms in high competition industries provide, on average, greater voluntary disclosures than the firms in low competition industries. The results are found to be robust to revisions in the specification of the model and modifications in the sample.
| Identifer | oai:union.ndltd.org:ADTP/233170 |
| Date | January 2001 |
| Creators | Ramaswami, Narayanaswamy, Accounting, Australian School of Business, UNSW |
| Publisher | Awarded by:University of New South Wales. School of Accounting |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | Copyright Narayanaswamy Ramaswami, http://unsworks.unsw.edu.au/copyright |
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