Do Weaker Firms Disclose More?

The Ebert, Simons, and Stecher (2017) disclosure model predicts that weaker firms, i.e., those that have lower operating performance, will make more disaggregated discretionary disclosures than stronger firms, a result somewhat at odds with traditional discretionary disclosure theory that predicts that stronger firms are more likely to voluntarily disclose. We use the IPO S-1 filing setting to test Ebert et al. (2017) and find that higher S-1 disaggregated discretionary disclosure quantity is significantly associated with lower operating performance. Our setting and analyses also plausibly rule out several alternative explanations. JEL Classifications: G30; K22; M40.