Proprietary Costs and Other Determinants of Nonfinancial Disclosures*

Abstract

Nonfinancial disclosure of product-related information and business expansion occur more frequently than corporate earnings guidance and trigger positive three-day abnormal stock price returns of 30-60 basis points on average. Consistent with Verrecchia (1983), nonfinancial disclosures occur less frequently but with a stronger good news bias when proprietary costs are high. In addition, although I find some commonality in the determinants of corporate guidance and nonfinancial disclosures, I find substantial differences between guidance and nonfinancial disclosures in the relation with institutional ownership, research and development, capital expenditures, and earnings volatility. Overall, my paper provides large sample evidence on the stock price consequences of an important but previously unexamined type of firm communication, on the role of proprietary costs in disclosure, and on the differences in the determinants of nonfinancial disclosure relative to guidance.