The Securities and Exchange Commission (SEC) allows firms to redact information from material contracts by submitting confidential treatment requests, if redacted information is not material and would cause competitive harm upon public disclosure. This study examines whether managers use confidential treatment requests to conceal bad news. We show that confidential treatment requests are positively associated with residual short interest, a proxy for managers’ private negative information. This positive association is more pronounced for firms with lower litigation risk, higher executive equity incentives, and lower external monitoring. Confidential treatment requests filed by firms with higher residual short interests are associated with higher stock price crash risk and poorer future performance. Collectively, our results suggest that managers redact information from material contracts to conceal bad news.
Skip Nav Destination
Research Article| November 09 2021
Do Firms Redact Information from Material Contracts to Conceal Bad News?
- Views Icon Views
- Share Icon Share
- Search Site
Dichu Bao, Yongtae Kim, Lixin (Nancy) Su; Do Firms Redact Information from Material Contracts to Conceal Bad News?. The Accounting Review 2021; doi: https://doi.org/10.2308/TAR-2020-0255
Download citation file: