Information Disclosure and Firm Performance: Evidence from the Dialysis Industry

Abstract

We study the impact of information disclosure policies on firm performance by exploiting a policy change that provides plausibly exogenous “shocks” to firms’ reputations based on their allocation to coarse performance categories. Medicare grades dialysis firms using three coarse performance categories based on patient survival rates: worse than expected, as expected, and better than expected. We exploit the underlying continuous performance measures used to create these categories to implement a regression discontinuity design. We find firms that just barely fall into the worse than expected category subsequently experience a reduction in patient mortality rates. We provide suggestive evidence that this improvement is driven largely by strategic patient selection. There is no impact of ratings on overall patient volumes, but facilities receiving poor grades treat fewer well-informed patients post- disclosure. We do not find comparable supply-side or demand-side effects for firms that just barely fall into the better than expected category. The overall evidence is consistent with disappointing information being a significant motivator of firm behavior.