Technology Spillover and Corporate Disclosure Transparency

Abstract

In recent decades the United States has become increasingly a knowledge-based economy as evidenced by a surge in patents. Companies strive to develop valuable technologies and to protect them from appropriation by competitors. We examine the implications of technological competition for patent-issuing firms’ redactions of technological information from new material contracts included with 10-K filings. We find that firms facing more intense technological competition are more likely to redact such information, and they redact it to a greater extent, presumably due to proprietary cost concerns. Total redactions (both technological and non-technological) also are greater for these firms. The results persist after controlling for a variety of product market competition measures. The results are more pronounced for firms with greater growth options, firms less financially constrained, and firms having recently sued others for patent infringements. The results are robust to using exogenous changes in state level R&D tax credits as an instrumental variable to address the endogeneity concern of technological competition. Our inferences can be extended to technologically innovative firms that do not hold patents. In summary, we document the implications of technological competition for redaction of proprietary technological information and these implications are distinct from and incremental to those of product market competition.