End of Intellectual Property Protection and Information Environment

This paper examines the effects of the end of intellectual property protection on a firm’s voluntary disclosure decisions. Focusing on the pharmaceutical industry, we document that firms are less inclined to provide management guidance around patent expirations due to the significant uncertainty regarding future performance. Specifically, managers are more likely to reduce short-term guidance compared to long-term guidance. This reduced likelihood of issuing management guidance stems primarily from managerial uncertainty. Our findings indicate that the non-issuance of management guidance is more pronounced when the patent expiration is associated with (a) a higher impact on the firm’s revenues and market share, (b) weaker IP protection, and (c) greater uncertainty about generic entry. In contrast, managers tend to increase qualitative disclosure about patent expiration during the presentation segments of the conference calls, plausibly to compensate for the reduced quantitative disclosures. Additionally, peer firms actively invest in their R&D pipelines to capitalize on the patent expiration of the focal firm without increasing their disclosure. Overall, our paper highlights how managers change their disclosures in response to market-anticipated adverse events.