EDGAR Implementation, Unionization, and Strategic Disclosure

Answering the call by Blankespoor et al. (2020) to study the effect of disclosure processing frictions on other stakeholders and decision contexts, this study examines how firms facing strong organized labor strategically respond to the implementation of the EDGAR system, which substantially reduced labor unions' information processing costs. We find that these firms reduce the disaggregation in their financial statements, the likelihood and frequency of their voluntary management forecasts, and the proportion of forecasts that convey good news, consistent with incentives to maintain an information advantage and bargaining position with labor unions. These reductions are more pronounced for a subsample of firms with greater distance to the SEC reference rooms where paper-based filings were stored for public review before the implementation of EDGAR, firms with less educated employees, and firms with higher labor-related proprietary cost of disclosures. Our study is the first to investigate the implications of information processing costs to labor markets and to examine firms' strategic disclosure responses to EDGAR implementation caused by concerns from other markets. It improves our understanding on the dynamic effects and real outcomes of shocks to disclosure processing costs beyond equity markets.