An Empirical Demand – Supply Model of Proprietary Financial Information

This paper analyses supply of and demand for financial information in a setting where proprietary cost seems the primary driver for a firm’s public disclosure decision. The empirical setting is mandatory public disclosure of annual reports by private firms in the Netherlands. As these firms have to file their annual report with the Dutch Chamber of Commerce within thirteen months after fiscal year end, the filing delay serves as a proxy for the firm’s unwillingness to disclose. We measure demand for information on the basis of the timeliness that annual reports are requested by users. Proprietary cost at firm level varies whether a firm has to file a profit and loss account and whether firms have above industry median profitability. Our findings are in line with our hypotheses, i.e., supply and demand for information are correlated: the higher the unwillingness of firms to disclose annual report information, the higher the demand for this information is. The main findings are supported by difference-in-difference tests, exogenous legislative changes, alternative measures of demand and supply, and additional tests on propensity score matching. Overall, our study highlights proprietary cost as an important determinant of the timing of public disclosure and subsequent demand.