End of Firms' Intellectual Property (IP) Protection and Voluntary Disclosures

This paper examines how the expiration of a firm's intellectual property protection affects its voluntary disclosure decisions. Existing research suggests that managers weigh the benefits of disclosure against its potential costs, particularly during adverse events. We focus on a unique, predictable adverse event: patent expirations. Using granular data on pharmaceutical drug patents, we find that firms are less likely to issue management guidance during quarters surrounding patent expirations, with a notable reduction in short-term guidance. This behavior is driven by two key mechanisms: the predictable nature of patent expirations reduces the risk of shareholder lawsuits, and managers seek to mitigate reputational risks by avoiding forecasts that could be perceived as overly optimistic. Despite the reduction in quantitative guidance, managers enhance qualitative discussions on patent expirations during conference calls. Firms proactively address anticipated revenue declines by increasing innovation efforts well before expiration dates. Overall, this study highlights how managers strategically adapt disclosure practices to navigate market-anticipated adverse events.