Constituency statutes and voluntary disclosure: Evidence from major customer identities

Abstract:
Corporate constituency statutes are legislation that allows persons with fiduciary duties to consider the interests of non-owner stakeholders (e.g., suppliers, employees, creditors, and communities) in decision making. We examine whether the adoption of these statutes affects the information environment of non-owner stakeholders. The information item of our interest is a company’s disclosure of the identities of its major customers because this information is typically desired by non-owner stakeholders, but its disclosure would incur proprietary costs to shareholders. Ex ante, the relation is unclear because the statutes are permissive and because the effects of the statutes have been debated. We find a significant increase in the disclosure of major customer identities by firms incorporated in states that have adopted the statutes relative to firms incorporated elsewhere. The increase starts to appear in the year right after the adoption and sustains in subsequent years. The increase is more pronounced for firms that rely more upon suppliers, employees, or public debtholders or for firms headquartered in communities with stronger social networks and norms. Our evidence suggests that a serendipitous legal nudge toward non-owner stakeholders results in increased corporate disclosure of information desired by these stakeholders.