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The effect of trade secrets protection on disclosure of forward‐looking financial information
Author(s) -
Li Yan,
Li Yutao
Publication year - 2019
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12418
Subject(s) - earnings , competition (biology) , shock (circulatory) , doctrine , business , product (mathematics) , state (computer science) , product market , financial market , finance , monetary economics , economics , market economy , law , medicine , ecology , geometry , mathematics , algorithm , political science , computer science , biology , incentive
Using the recognition of the Inevitable Disclosure Doctrine (IDD) by US state courts as an exogenous shock to the risk of losing trade secrets, this study examines the effects of trade secrets on disclosure of forward‐looking financial information. We find that management earnings forecast frequency and forecast horizon increases after the US state where a firm is headquartered starts to recognize IDD. We also find that the effect of IDD recognition on management forecasts is more pronounced for firms that have larger market shares, higher product market competition, more intensive R&D, shorter distance to their industry rivals, and more employees who possess knowledge of the firms’ trade secrets.