Isolating the Effect of Disclosure on Information Risk
Journal of Accounting and Economics, Forthcoming
51 Pages Posted: 3 Sep 2009 Last revised: 4 May 2016
Date Written: March 2, 2011
This study examines companies with two classes of shares that entitle their holders to identical cash flow and voting rights but that are available to mutually exclusive sets of investors: A shares to domestic investors and B shares to foreign investors. Price differences between A and B shares are higher in firms with a greater disparity in the disclosures that they make to domestic and foreign investors. This association is more pronounced when the cost (benefit) of information transfer is higher (lower). The results suggest that disclosure disparity creates meaningful differences in investors’ average information precision across A and B shares and thus influences the cross-sectional variation in price differences.
Keywords: Disclosure; Accounting standards; Information risk; Fundamental risk; Information cost; Language; Distance; Arbitrage; Protection of property rights; China
JEL Classification: M41, G14
Suggested Citation: Suggested Citation