Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

57 Pages Posted: 28 Oct 2011 Last revised: 25 Aug 2013

Karthik Balakrishnan

London Business School

Mary Brooke Billings

New York University

Bryan T. Kelly

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Alexander Ljungqvist

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)

Multiple version iconThere are 3 versions of this paper

Date Written: August 25, 2013

Abstract

Can managers influence the liquidity of their firms’ shares? We use plausibly exogenous variation in the supply of public information to show that firms actively shape their information environments by voluntarily disclosing more information than regulations mandate and that such efforts improve 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 and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure.

Keywords: Liquidity, Voluntary disclosure, Earnings guidance, Information production, Management communication, Investor relations, Analyst coverage, Retail investors

JEL Classification: G12, G24, M41

Suggested Citation

Balakrishnan, Karthik and Billings, Mary Brooke and Kelly, Bryan T. and Ljungqvist, Alexander, Shaping Liquidity: On the Causal Effects of Voluntary Disclosure (August 25, 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1950123 or http://dx.doi.org/10.2139/ssrn.1950123

Karthik Balakrishnan

London Business School ( email )

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Mary Brooke Billings

New York University ( email )

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Bryan T. Kelly

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Belgium

Research Institute of Industrial Economics (IFN) ( email )

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Stockholm, SE-102 15
Sweden

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