64th CARF Seminar: Mandatory disclosure and acquisition: Evidence from material contract redactions

Monday, June 9th, 2025 15:30 – 17:30（Pre-registration necessary)
※Language: English

Hyun A Hong
Associate Professor, University of California, Riverside
Profile

We study how the Securities and Exchange Commission’s program to allow firms to request confidential treatment of proprietary information in material contracts affects the corporate control market by examining acquisition surplus. The surplus refers to the total economic gains yielded from an acquisition above the combined standalone values of the acquiring and target firms. We test the surplus theoretically and empirically by two distinct types of firm with contract redactions in SEC filings: (i) those providing information to bidders on proprietary value through redaction (proprietary value hypothesis) and (ii) those exploiting redactions opportunistically to conceal adverse news in corporate control markets (agency cost hypothesis). Our findings support the proprietary value hypothesis. Successful acquisitions yield an ex-ante and ex-post surplus consistent with targets’ redactions, which exhibit characteristics most consistent with the safeguarding of proprietary information relating to valuable technology and business contracts with other entities. Contrary to the intent of the SEC–to protect firms from harm in the product markets–confidential treatment redactions are also valuable to acquirers in the corporate control market.