The effect of financial reporting on strategic investments : evidence from purchase obligations

I examine whether mandating the disclosure of investments influences firms' strategic interactions. I exploit an SEC regulation requiring firms to report off-balance sheet purchase obligations, such as commitments to inventory purchases, CAPEX, R&D, and advertising. Motivated by theory on strategic investments, I predict and find that firms respond to the regulation by increasing investments if they have substitutive product market strategies with competitors, and decreasing investments if they have complementary strategies. This two-way finding is consistent with firms using investments to influence competitors' behavior in ways that increase their own profits. I show that changes in investments are concentrated among firms with large market share, which have a greater ability to influence competitors' actions, and that they have real effects on firms' sales and profit margins. Collectively, my results illustrate a novel channel through which financial reporting shapes firms' investments and competition.

Name thesis:degree_name

Doctoral

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2020

Author dc:creator

• Noh, Suzie.

Advisor dc:contributor.advisor

• Eric So and Rodrigo Verdi.

• Sloan School of Management.

Statement dc:rights

• MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/126976

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/126976