Nondisclosure and analyst behavior: evidence from redaction of proprietary information from public filings

Abstract

This study explores how the redaction of proprietary information from public filings is related to analyst following and properties of analysts’ earnings forecasts. The paper uses hand-collected data on firms’ confidential treatment orders from the SEC EDGAR database to identify firms that withhold information (redacting firms), which are benchmarked to a matched set of firms that do not (non-redacting firms). Relative to non-redacting firms, the paper predicts and documents that redacting firms have (i) higher analyst following; (ii) more dispersed and less accurate analysts’ earnings forecasts; and (iii) lower precision of both public and private information contained in analysts’ earnings forecasts. Additional analyses reveal that analysts covering redacting firms trade off accuracy for timeliness when issuing earnings forecasts, that the market reaction to analyst reports is higher for redacting firms, and that for redacting firms investors place higher weight on information from analysts relative to that from the firm itself. Overall, the findings suggest that firms engaging in redacted disclosure exhibit greater investor demand for analyst outputs, a deterioration in the analysts’ information environment, but also greater investor reliance on analyst outputs.