A simple structural estimator of disclosure costs
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This study recovers a simple firm-level measure of disclosure costs implied by the voluntary disclosure theory of Verrecchia (Journal of Accounting and Economics 12(4), 365–380, 1990). The measure does not require knowledge by the researcher of the distribution of private information and can be implemented with three simple observable inputs: the minimum, average, and frequency of disclosure. We document a positive association of disclosure costs with proxies for existing and potential competition, information asymmetry, and insider trading. Higher values of disclosure costs are associated with lower contemporaneous and future disclosures as well as lower propensity to disclose in holdout samples. Overall, we provide future researchers with an easy-to-implement procedure to structurally estimate unobserved firm-level disclosure costs.
KeywordsVoluntary disclosures Disclosure costs Proprietary costs Structural estimation Management forecasts
JEL ClassificationC14 D21 D22 D83 G14 M4
We warmly thank Jeremy Bertomeu, Moritz Hieman, Hui Chen, Ivan Marinovic, Korok Ray, Paul Fischer, Michael Kirschenheiter, and participants at the Stanford Summer Camp (2015), the Burton Workshop at Columbia Business School (2015), the Annual American Accounting Association (2016), the Rady School of Management Workshop (2016), and the tenth Accounting Research Workshop at Basel (2017) for helpful feedback.
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