Redact to Protect? The Effects of Customer-Supplier Relations on Suppliers’ Information Strategies

Abstract

Protecting value-relevant information is becoming increasingly important and challenging as we move towards a knowledge-based economy and partners along the supply chain are more closely intertwined. We document three customer-supplier characteristics (i.e., customer R&D intensity, patent cross-citations, customer size) that vary directly with suppliers’ likelihood of redacting mandated disclosures after controlling for supplier’s own proprietary cost concerns. We further use customers’ possession of trade secrets and nondisclosure agreements to capture customers’ known preference for information withholding and find that their suppliers are more likely to redact. The increased likelihood of redaction is concentrated in supply chain and R&D-related information. Overall, our findings highlight that customers’ incentive to protect information, particularly knowledge or value intensive information, can have a significant influence on suppliers’ disclosure strategies.