Walking the Line between Reducing Information Asymmetry and Protecting Proprietary Information : Management Forecasts by Newly Public Firms

Firms that redact proprietary information in their IPO filings bear significant costs to shield that information, and yet we find that the majority choose voluntary disclosure via management forecasts. They modify the characteristics of their forecasts in ways that plausibly attempt to reduce information asymmetry while still protecting their proprietary information. Specifically, they forecast fewer items, avoid quarterly forecasts, and avoid forecasting expenses when they have redacted information in supplier contracts. We also find rapid changes in forecasting strategy for redacting firms, going from being significantly less likely to forecast in their first two quarters as public firms to being no less likely to forecast than non-redacting firms by the eighth quarter. Our results shed light on how firms shield proprietary information while also attempting to reduce information asymmetry, and how firms manage their disclosure strategy dynamically as external and internal factors that affect their proprietary costs and information asymmetry concerns evolve