Economic policy uncertainty and corporate disclosure

Purpose Economic policy uncertainty (EPU) poses challenges for firms navigating disclosure decisions. While prior research often examines mandatory and voluntary disclosures separately, this study investigates how firms jointly adjust both under heightened EPU. We assess whether firms treat these channels as complements consistent with the confirmation hypothesis, or as substitutes reflecting a shift in disclosure priorities. Design/methodology/approach We analyse a panel of 61,356 firm-year observations for US public firms from 2001 to 2022. Mandatory disclosure quality is measured using the financial statement divergence (FSD) Score, a pattern-based measure derived from Benford's Law that detects anomalies in financial reporting. Voluntary disclosure is captured through characteristics of management earnings forecasts, including frequency and specificity. Endogeneity is addressed through firm fixed effects and instrumental variable estimation using the Political Conflict Index and Lewbel's method. Multiple robustness checks, including alternative disclosure measures and omitted variable bias tests, strengthen the credibility of the findings. Findings We find the robust evidence that firms respond to elevated EPU by improving the structural integrity of mandatory reports. Concurrently, we observe nuanced, descriptive patterns in voluntary channels, generally characterised by the reduced forecast frequency and specificity. This substitution effect suggests a strategic shift toward verifiable, audited information and away from forward-looking guidance. The findings challenge the Confirmation Hypothesis and indicate that firms prioritise defensibility over disclosure breadth during uncertainty. Originality/value This study introduces the FSD Score to the disclosure decision literature and offers novel evidence on disclosure substitution under policy uncertainty. By integrating mandatory and voluntary channels in a unified framework, the study offers insights into how firms recalibrate transparency strategies and informs regulators seeking to preserve disclosure quality during volatile periods.