Interfirm cooperations (IFCs) are non-equity-based arrangements – frequently with corporate partners formed across industry boundaries – that have thrived in volatile and uncertain business environments recently. Despite their importance, IFCs are not subject to mandatory disclosure requirements. Drawing on signalling theory, we show how managers can achieve beneficial capital market effects by voluntarily providing IFC-related information. Using automated textual analysis, we extract IFC-related disclosure elements from firms’ Form 10-K filings and construct a novel metric to capture the extent of such information. We then examine how this disclosure metric relates to the various capital market performance indicators of our sample firms. Our empirical results reveal inverted U-shaped associations between the extent of these disclosures and firms’ market value and trading volume. We further find U-shaped associations between the extent of such disclosures and firms’ cost of equity capital and bid-ask spread. Our study thus demonstrates the value relevance of voluntary IFC-related disclosures and their usefulness to investors in decision-making. Considering the identified non-linear relationships, we emphasise the importance for firms to strike a strategic balance regarding the extent of their voluntary IFC-related disclosures in order to maximise their capital market performance while minimising proprietary costs and information overload for investors.
Zink et al. (Fri,) studied this question.