Does too Much Disclosure About Customers hurt Firms?

Investors, analysts, and regulators argue for greater disclosure of non-financial metrics, such as customer metrics. In contrast, managers typically complain that they are costly to report and reveal sensitive information to competitors, which lowers profitability and thus future cash flows. This study is the first that develops a score to measure the extent of customer metrics disclosure, manually codes 365 annual reports in the telecommunications industry, and analyzes the consequences of customer metrics disclosure. Results show that higher disclosure of forward-looking information on customer metrics lowers analysts’ and investors’ uncertainty. In contrast to managers’ complaints, the authors also find that both backward- and forwardlooking disclosures on customer metrics have a positive effect on future cash flows.