We propose two explanations for the previously documented relation between aggregate earnings growth and future inflation: one based on firms changing their investment in response to earnings growth, and the other based on consumers varying their consumption in response to wealth effects of profitability growth. As the supply of goods and services is relatively inelastic in the short run, our arguments imply that changes to near-term demand for investment (consumption) will affect the prices of investment (consumption) goods and services. Consistent with the investment-based argument, we find that profitability changes predict investment and Producer Price Index (PPI) shifts in subsequent quarters. Our analyses also reveal that aggregate earnings growth predicts future investment and PPI forecast errors. We find, at best, weak evidence for the consumption-based link between aggregate earnings growth and future inflation.

The Securities and Exchange Commission permits companies to redact proprietary information from material contract filings, so long as the redacted information (1) would cause competitive harm if disclosed, and (2) the information is legally immaterial. Because these joint criteria are inherently contradictory, we examine whether legally immaterial redacted information is economically material to investors. We find that firms’ stock price discovery process is significantly slower and insider trading is significantly greater after companies file redacted contracts compared to nonredacted contracts. We then examine the impact of the 2019 FAST Act, which reduced the SEC’s oversight of redacted contracts. Companies redact more frequently and insider trading (but not speed of stock price discovery) is more pronounced after the FAST Act. Taken together, these findings suggest that at least some redacted information is economically material to investors and that reducing SEC oversight of redacted information may not be in investors’ best interests.

Previous theoretical arguments suggest that industrial diversification provides a co-insurance effect that decreases the firm's default risk. In this paper, we endogenously estimate a firm's segment disclosure quality and investigate whether the quality of segment disclosures significantly affects bond investors' assessment of the co-insurance effect of diversification. We document that bonds issued by industrially diversified firms with high-quality segment disclosures have significantly lower yields than bonds issued by diversified firms with low-quality segment disclosures. We also find that the negative relation between industrial diversification and bond yields becomes stronger when firms improve segment disclosures as a result of FAS 131. Finally, we show that high-quality segment disclosures are associated with lower syndicated loan spreads for a subsample of loans issued by large bank syndicates, which are more likely to rely on publicly reported segment information.