Real Effects of Disclosure Regulation: Evidence from U.S. Import Competition

Abstract

This paper investigates the impact of disclosure regulation on import competition. Using the segment disclosure regulation (SFAS 131) as a plausibly exogenous shock that increases the supply of mandatory information about U.S. product markets, I uncover an increase in U.S. import competition at the industry level. Consistent with foreign competition, the effect is more pronounced in industries with high labor intensity and in industries with low competition, where foreign firms have a greater incentive to compete with U.S. firms. Consistent with learning from disclosures, the effect is stronger in industries with high demand uncertainty and in industries with high trade policy uncertainty, where learning to reduce uncertainty is more beneficial. In addition, I provide evidence that the segment disclosure regulation generates negative spillover effects on the performance and investment of U.S. firms that are not directly affected by the regulation through its impact on import competition.

Keywords: real effects, disclosure regulation, segment disclosure, import competition, spillover effects

JEL Classification: G10, M41, M48