Aggregate Disclosure Incentives: The Role of Supply Market Investments

ABSTRACT This study advances our understanding of firms’ incentives to disclose aggregate information. In standard product and supply market settings, firms prefer to either provide detailed information or make no disclosure at all. However, this paper shows that the confluence of product market competition and supply market investments creates a distinct ex ante preference for aggregate disclosures. Firm disclosures encourage supply market investments. Supply market decisions are made at the firm level rather than at the product level, implying that aggregate disclosures are sufficient for the supplier’s decisions while simultaneously obfuscating information from rivals. The results highlight how the divergent informational needs of external parties shape firms’ disclosure decisions. Specifically, our analysis shows that when supplier investments are critical and information is industry-specific, firms prefer aggregate disclosures. This preference persists even in industries characterized by private communication between firms and suppliers: aggregation emerges in both public disclosures and private communications. JEL Classifications: D43; D82; L13; M41.