“Disclosure Regulation and Managers’ Information Acquisition” by Miss Yifang Xie
Miss Yifang Xie
Ph.D. Candidate in Accounting
Olin Business School
Washington University in St. Louis
This paper studies whether disclosure regulation affects firm managers’ incentive to acquire information. Theory predicts that, when managers are required to disclose unfavorable information, they have less incentive to collect the information. I empirically test this prediction by investigating a 2007 regulation change that requires pharmaceutical firms to disclose newly found safety problems on their product labels. Using a difference-in-difference research design, I find that firms collect less new safety information in the post-regulation period. In the cross-section, the results are stronger for public firms and more lucrative drugs, which have higher costs of disclosing newly found problems. The results are unlikely to be driven by managers withholding information and are robust to controlling for potential changes in the FDA’s monitoring intensity. Collectively, my findings highlight one unintended negative consequence of disclosure regulation—reduction of managers’ incentive to collect information.