Do Information Releases Increase or Decrease Information Asymmetry? New Evidence from Analyst Forecast Announcements
Columbia Business School - Accounting, Business Law & Taxation
Edward L. Owens
Emory University - Department of Accounting
George Washington University - School of Business
November 29, 2012
Columbia Business School Research Paper No. 12/54
Prior literature documents an announcement period increase in information asymmetry for earnings announcements and management forecasts. In sharp contrast, we predict and document a decrease in information asymmetry upon announcement of analyst forecasts. We find that this decrease is more pronounced for analyst forecasts with greater information content and when analysts exert higher effort, and is less pronounced after exogenous regulatory actions that diminished analysts’ ability to obtain private information. Our predictions and evidence demonstrate the general insight that the directional effect of an information release on announcement period information asymmetry depends on whether the information is unprocessed or processed, and on how the information interacts with prior information held by sophisticated and unsophisticated investors. These findings enhance our understanding of the effects of information intermediaries in capital markets.
Number of Pages in PDF File: 48
Keywords: Information Asymmetry, Public Information, Analysts
JEL Classification: G14, M40
Date posted: September 20, 2012 ; Last revised: November 29, 2012
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