Title
Causal ambiguity: shape-flip between product market competition at industry level and voluntary disclosure
Document Type
Article
Date of Original Version
9-18-2020
Abstract
This paper analyses the moderating effect of causal ambiguity on the relation between product market competition (i.e. product substitution) and firms’ voluntary disclosure behaviour. Our empirical results show a ‘shape-flipping function’. That is, we observe an inverse U-shaped relation between competition and disclosure when causal ambiguity is low. Such a relation gradually evolves towards a U shape as the level of causal ambiguity increases. Our theoretical explanation is that causal ambiguity relaxes or inhibits the intensity of the proprietary and agency costs of voluntary disclosure (underlying restrictions of competition), and simultaneously strengthens the subjacent incentives of competition to reveal information. We obtain empirical evidence of this global perspective based on logistic estimations of a sample of US manufacturing firms from 2002 to 2015. Our models use earnings per share (EPS) forecast as a proxy of voluntarily disclosed information, inverse margin rate as a proxy of product market competition at industry level, and several proxies of causal ambiguity (i.e. firm complexity and firm predictability).
Publication Title, e.g., Journal
Accounting and Business Research
Volume
50
Issue
6
Citation/Publisher Attribution
Gago Rodríguez, Susana, Bing Guo, Gilberto Marquez Illescas, and Manuel Núñez Nickel. "Causal ambiguity: shape-flip between product market competition at industry level and voluntary disclosure." Accounting and Business Research 50, 6 (2020): 574-607. doi: 10.1080/00014788.2020.1723056.