Labor costs voluntary disclosure: proprietary information or a signaling instrument?

Abstract

This study explores the content of labor cost voluntary disclosure by examining and comparing labor productivity and managerial efficiency in labor use between disclosing and non-disclosing firms and between disclosing firms differing in their degree of industry disclosure intensity. A production function approach is followed to estimate labor-related productivity and efficiency indicators based on accounting data relative to labor costs disclosure for a sample of US firms in 1997. The estimates are then incorporated into binary and multinomial logistic regressions to model the disclosure decision and intensity along with other explanatory variables, namely political costs, and costs. The study?s main results show that non-disclosing firms have on average a higher value marginal product of labor (or VMPL) than disclosing firms and that costs are negatively related to voluntary disclosure of labor costs. These results seem to support the proprietary information hypothesis of voluntary disclosure where the indirect costs of voluntary disclosure in terms of competitive and strategic costs outweigh the signaling benefit from disclosing labor and related costs.