Xingyuan Fei

This paper examines how CEO tenure shapes firms' use of observable information withholding through redactions in material contracts. Unlike traditional voluntary disclosure settings, in which investors generally cannot observe whether managers possess and withhold specific information, redactions create a "known-unknown" environment: market participants observe that information has been withheld but cannot observe its underlying content. We argue that CEO tenure is related to redaction decisions as managerial incentives evolve from establishing credibility early in the tenure cycle to preserving an established reputation later in the tenure cycle. Using a sample of publicly traded firms, we find that CEO tenure is positively associated with the extent of redaction. This association is stronger when redacted information is more likely to be unfavorable, consistent with longer-tenured CEOs having greater incentives to protect established reputations when potentially negative information is at stake. We further find that redaction is related to greater analyst earnings forecast error and dispersion, but these adverse information consequences are weaker for longer-tenured CEOs. This finding suggests that CEO reputation affects not only managers' incentives to withhold information but also how market participants interpret observable withholding. Additional analyses show that our results are robust to different model specifications and measurement choices. Overall, our findings provide evidence that the evolution of managerial incentives over CEO tenure shapes both the use and consequences of observable information withholding within a regulated disclosure environment.

We examine whether and how redacted disclosure in material contracts is related to the cost of an audit. Prior studies document that redaction of mandatory disclosure affects firms’ operating performance, voluntary disclosure decisions, and various market outcomes due to increased information asymmetry. Auditors do not face this information constraint and can access redacted information with little effort, and thus should not be affected by the redacted disclosure. Our findings show that while redacted disclosure has limited impact on audit effort, auditors do charge higher fees for redacting firms as they perceive redacted disclosure as an indicator of potential business and litigation risk. We also find that the positive relation between redacted disclosure and audit fees is mitigated for firms with a more transparent information environment (i.e., larger firms, firms providing more voluntary disclosure, firms with large customers, and firms with higher institutional ownership). Overall, our results suggest that auditors become more cautious in response to clients’ nondisclosure choices from public filings.