The effect of trade secrets protection on disclosure of forward‐looking financial information

Yan Li and Yutao Li

Journal of Business Finance & Accounting, 2020, vol. 47, issue 3-4, 397-437

Abstract: 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.

Date: 2020
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https://doi.org/10.1111/jbfa.12418

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