Mandatory Environmental Disclosure with Options to Withhold Trade Secrets

This paper studies firms’ information withholding in a mandatory environmental disclosure regime where regulators only allow firms to withhold information regarded as a trade secret. I find evidence of withholding information for reasons other than proprietary-cost concerns, which is inconsistent with regulators' intent. Since innovative firms are likely to own trade secrets, I expect them to withhold more information than non-innovative firms. However, I do not find evidence in support of this prediction, and the null result is explained by the opportunistic withholding of information by non-innovative firms. I find that non-innovative firms withhold more information as trade secrets when states have looser disclosure rules (i.e., more opportunities for being non-compliant), regulators do not monitor polluting activities (i.e., fewer litigation concerns), and firms operate in larger communities (i.e., disclosure has higher political costs). I do not find such variations among innovative firms. Together, the findings suggest that firms may engage in avoidance strategies in mandatory environmental disclosure programs with options to withhold trade secrets. This paper highlights the importance of trade secret verification in such disclosure regulations