The Impact of Mandatory Disclosure on Information Acquisition: Theory and Experiment

This study experimentally investigates the interaction between firmfs information acquisition choice and mandatory disclosure in the presence of proprietary costs. The results demonstrate that mandatory disclosure diminishes firmfs incentive to acquire industry-wide demand information when information acquisition is costly and endogenous. Further, I also show that firmfs production decision is improved by acquiring information. Taken together, although acquiring information improves firmfs production decision, mandatory disclosure diminishes firmfs incentive to do so, and thus, deteriorates firmfs information environment. This leads to inefficient production, which in turn, might have a substantial impact on market outcomes.