Does Voluntary Disclosure Substitute for Mandatory Disclosure? Evidence from Contract Redactions

Abstract

This study addresses whether firms provide more voluntary disclosures when they redact otherwise mandatorily disclosed contract information and have higher information uncertainty when they redact, and whether the disclosures mitigate this higher uncertainty. Redactions are significantly positively associated with more total, earnings, and non-earnings voluntary disclosures made within 90 days after redaction, and are significantly positively associated with information uncertainty up to 180 days. The disclosures mitigate the higher uncertainty, but do not offset it fully. Regarding contract types, firms provide significantly more disclosures primarily when redactions relate to R&D and license, manufacturing and purchase and sales, and investment contracts, and provide disclosures in anticipation of redactions in R&D and license contracts. We find that the disclosures relating to contract types mitigate the higher information uncertainty associated with redaction. This evidence can inform the SEC in its consideration of the effects on information available to investors of reducing mandatory disclosure.