Behind Closed Doors: Preferential Disclosure in Private Meetings

Abstract

We examine investor relations officers’ (IROs) disclosure decisions in private meetings with investors. In these settings, IROs face conflicting pressures to maintain a “level playing field” for all investors while also catering to investors. We experimentally test how pre-disclosure materiality consideration, recommended by professional standards, affects disclosure to more and less preferred investors. Across two experiments, a total of 273 experienced IROs respond to hypothetical investor questions. We find direct evidence that IROs provide more useful private disclosures to more preferred investors, even when less preferred investors ask the exact same questions. Further, materiality consideration dampens overall disclosure but does not reduce, and may even encourage, preferential disclosure to more preferred investors. Supplemental data indicates that IROs are more likely to provide preferred investors with private access to the CEO, and professional investors believe this access provides even more useful investment information. Our results have implications for firms and regulators.