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Breaking it Down: Competitive Costs of Cost Disclosures

Philip G. Berger, Jung Ho Choi () and Sorabh Tomar
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Philip G. Berger: University of Chicago Booth School of Business

Research Papers from Stanford University, Graduate School of Business

Abstract: Does decomposing cost of goods sold entail significant competitive costs? We examine this question using a relaxation of disaggregated manufacturing cost disclosure requirements in Korea. Our survey evidence indicates managers perceive these disclosures to provide a competitive edge to competitors. Using archival data, we find firms with distinctive cost structures and high market shares are less willing to disclose, consistent with a desire to protect cost-leadership advantages embedded in production and sourcing. Firms experience higher gross profits and lower liquidity after withholding manufacturing cost details, suggesting these disclosure decisions involve trading off competitive costs (and not managers’ self-interests) against capital market benefits. At the aggregate level, industries with more nondisclosing firms subsequently experience greater profitability dispersion, suggesting uncertainty about competitors’ cost of goods sold helps drive the widely studied performance dispersion observed within industries.

JEL-codes: D40 D80 L15 M40 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-com and nep-ind
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Citations: View citations in EconPapers (3)

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