Trade Secrets Law and Corporate Disclosure: Causal Evidence on the Proprietary Cost Hypothesis

This study exploits the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts as an exogenous shock to the proprietary cost of disclosure. We find that firms respond to IDD adoption by reducing the level of disclosure regarding their customers’ identities, supporting the proprietary cost hypothesis. Our results are stronger for firms in industries with a higher degree of entry threats and for firms with a lower degree of external financing dependence. Overall, this study represents one of the first efforts in identifying and quantifying the causal effect of proprietary costs of disclosure on the supply of disclosure.