AAA Spark Meeting of the Regions

Constituency Statutes and Corporate Disclosure of Major Customer Identities

• In Event: DSFI/SE - Session 1 (Archival)

Abstract

Corporate constituency statutes are permissive legislation that allows persons with corporate fiduciary duties to consider the interests of non-owner stakeholders (e.g., suppliers, employees, creditors, and local 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 the disclosure would incur proprietary costs to shareholders. Ex ante, the relationship is unclear because the statutes are permissive, not mandatory, 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 constituency statutes relative to firms incorporated elsewhere. The increase starts to appear in the year after the adoption and sustains in subsequent years. The increase is more pronounced for firms that rely more upon on suppliers, employees, or creditors (especially public debtholders). Overall, our evidence suggests that a serendipitous legal nudge toward non-owner stakeholders results in increased corporate disclosure desired by these stakeholders.

Authors

• Suzanne Mullinnix, AAMVA

• Jackie Zeyang Ju, University of Kentucky

• Jennifer Wu Tucker, University of Florida

• Hong Xie, University of Kentucky