Private Information Acquisition via Freedom of Information Act Requests

Abstract

There is limited empirical evidence about when and why individuals incur costs to acquire information about a firm that is not publicly available, which we refer to as private information acquisition. This lack of evidence is due in large part to the difficulty of observing private information acquisition. To overcome this difficulty, we use Freedom of Information Act (FOIA) requests submitted to the Securities and Exchange Commission (SEC) for information that is not otherwise publicly available. We find that the perception of information asymmetry between managers and outsiders resulting from both proprietary and agency cost considerations triggers information acquisition via the FOIA process. A significant portion of FOIA search stems from non-investor groups, including law and intellectual property firms. Consistent with these stakeholders finding this information useful, we find that FOIA search is associated with changes in the competitive landscape and patent infringement and securities class action lawsuit filings.