To tell or not to tell? Examining voluntary disclosure of customers’ identities under capital market pressure

Abstract

Using China’s short-sell reform as a quasi-natural experiment, we find that firms respond to short-sell pressure by reducing the disclosure of their customers’ identities after controlling for the influence of proprietary costs. The result remains robust after conducting a parallel trends test and a placebo test, and using a propensity score matching approach. Furthermore, non-disclosure becomes more prevalent among firms with highly perceived customer risks and significant discretionary revenues. These findings imply that negative information transmission between economically linked firms and potential agency issues inherent to supplier firms prompt them to withhold customer identity. Finally, a non-disclosing strategy benefits firms by lowering the probability of fraud detection and reducing operating uncertainty. We suggest regulators implement policies to incentivize firms to improve information transparency in the supply chain.