Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

57 Pages Posted: 21 Sep 2012 Last revised: 25 Aug 2013

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business

Mary Brooke Billings

New York University

Bryan T. Kelly

Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

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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.

Suggested Citation

Balakrishnan, Karthik and Billings, Mary Brooke and Kelly, Bryan T. and Ljungqvist, Alexander and Ljungqvist, Alexander, Shaping Liquidity: On the Causal Effects of Voluntary Disclosure (August 25, 2013). Journal of Finance, Forthcoming, NYU Working Paper No. 2451/31352, Available at SSRN: https://ssrn.com/abstract=2150035

Karthik Balakrishnan (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

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Mary Brooke Billings

New York University ( email )

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Bryan T. Kelly

Yale SOM ( email )

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AQR Capital Management, LLC ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

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111 60 Stockholm
Sweden

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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