The Effects of Voluntary Disclosure of Product Information on Firm Innovation: The Case of Front-of-Package Nutrition Labeling Initiative

Abstract

In this study, I examine the effects of consumer packaged food manufacturers’ voluntary adoption of the Front-of-Package (FOP) nutrition labeling program on firm innovation. Specifically, I study if voluntary participation in the program spurs food manufacturers to be more innovative and introduce more and better new food products.

To empirically investigate my research question, I assemble a unique data set compiled from several sources of secondary data on consumer packaged food products that are introduced in the United States. More specifically, I collected product-specific calorie and nutrient information on all the new products that were introduced by food manufacturers over a 10-year period during which I analyzed several brands and products (more than 600 brands and 7,500 products) in four different food product categories. To disentangle the self-selection effect from the causal effect of voluntary participation in the program on firms’ innovativeness, I employ a quasi-experimental study design using a combination of propensity score matching (PSM) and a series of difference-in-differences (DID) and quantile difference-in-differences (QDID) models.

I focus on two dimensions of innovativeness, quantity and quality of innovation. For quantity of innovation, I look at the number of new product introductions and for quality of innovation, I assess changes in calorie content, levels of individual nutrients and overall nutrition score of new products. The results indicate that firms’ participation in FOP nutrition labeling initiative increases their innovativeness on both the quantity and the quality dimensions. I find that participant firms introduce more innovative and nutritionally better products as compared to non-participant firms. Additional analyses suggest that early adopters of FOP nutrition labeling introduce more new products as compared to late adopters of FOP. I also find that the effect of FOP nutrition labeling is enhanced for products that carry nutrient content claims. The results of my study have important implications for consumers, managers and policymakers, and I hope that this study spurs further examination of the effects of industry-led voluntary initiatives on consumer welfare.