The differential effects of proprietary cost on the quality versus quantity of voluntary corporate disclosures

Journal Title
Journal ISSN
Volume Title

Recent analytic research distinguishes between the quantity and quality of public information and demonstrates their independent roles in affecting cost of capital. However, there exists no empirical evidence on the differences between the two. This study decomposes voluntary disclosure decisions into the quantity decision and the quality decision and examines their differential relations with disclosure determinants such as proprietary cost in a joint determination system. I find strong evidence of contrasting effects of proprietary cost on the quantity versus quality of voluntary disclosures. Firms with high proprietary cost provide more frequent but less precise and less accurate information disclosures than firms with lower proprietary cost, consistent with the explanations that high proprietary cost firms lower disclosure quality to reduce the usefulness of the information to competitors and instead they use a high quantity of disclosures to resolve information asymmetry in the capital market in response to investors’ demand for information. Three-stage least squares (3SLS) regression results reveal a substitute relation between quantity and quality of disclosures for firms facing high proprietary cost. Results of this study highlight the importance of the distinction between quantity and quality of information in discretionary disclosure research. Future research may examine the differential capital market consequences of the quantity and quality of voluntary disclosures.