Shaping Liquidity: On the Causal Effects of Voluntary Disclosure
University of Pennsylvania - Accounting Department; University of Pennsylvania - The Wharton School
Mary Brooke Billings
New York University; New York University (NYU) - Department of Accounting, Taxation & Business Law
Bryan T. Kelly
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)
April 10, 2013
Can managers influence the liquidity of their firms’ shares? We use plausibly exogenous variation in the supply of public information to show that firms seek to actively shape their information environments by voluntarily disclosing more information than is mandated by market regulations and that such efforts have a sizeable and beneficial effect on liquidity. Firms respond to an exogenous loss of public information by providing more timely and informative earnings guidance. Responses appear motivated by a desire to reduce information asymmetries between retail and institutional investors. Liquidity improves as a result of voluntary disclosure and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure.
Number of Pages in PDF File: 54
Keywords: Liquidity, Voluntary disclosure, Earnings guidance, Information production, Management communication, Investor relations, Analyst coverage, Retail investors
JEL Classification: G12, G24, M41working papers series
Date posted: October 28, 2011 ; Last revised: April 15, 2013
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