Voluntary Disclosure Quality, Operating Performance, and Stock Market Valuations
University of Zurich - Department of Banking and Finance
Alexander F. Wagner
University of Zurich - Department of Banking and Finance; Harvard University; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
September 13, 2013
Swiss Finance Institute Research Paper No. 11-25
We document that firms with better voluntary disclosure quality VDQ have better operating performance and exhibit higher valuation ratios. These results hold controlling for firm fixed effects as well as with two instrumental variables approaches. Thus, the evidence provides support for the hypothesis that VDQ is causally linked to value generation, adding to the previously established effects of information transmission that occur when managers use more extensive disclosure to convey privately known good news about future firm results. In addition, VDQ and excess returns (beyond those available through passively investing in popular styles) are slightly positively related in the full sample, suggesting that stock prices do not fully incorporate the value of higher disclosure quality. Here, the analysis adds to existing work by showing that, consistent with mispricing, the positive relation between VDQ and excess returns is driven by those firms for which previous literature has shown that equity prices are relatively slow to reflect new information.
Number of Pages in PDF File: 39
Keywords: Voluntary disclosure quality, portfolio analysis, value reporting, disclosure
JEL Classification: G11, G14, G30, M41working papers series
Date posted: July 6, 2011 ; Last revised: September 13, 2013
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