UC Irvine

I investigate the impact of disclosure regulation on competition. Using a threshold of the anti-fraud disclosure regulation in the U.S. government procurement market, I find that requiring contractors to disclose contract-related misconduct discourages competition in contract bidding. Consistent with heterogeneity in compliance costs, the effect is more pronounced (1) when contract bidders are small firms, (2) when a contract is low value, (3) when a contract is likely to involve more disclosures, and (4) when there are alternative markets for the contracted product. Next, I provide direct evidence of channels as to why the regulation leads to less competition. I find that whistleblower lawsuits and IRS attention to contractors with treated contracts increase because contract-related misconduct is more visible after the regulation is in place. Overall, my evidence suggests that disclosure regulation has significant real effects by imposing costly compliance costs and additional risks on bidders to the extent that they are unwilling to bid, which reduces competition in the government procurement market.