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Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

54 Pages Posted: 20 Apr 2013  

Karthik Balakrishnan

London Business School

Mary Brooke Billings

New York University

Bryan T. Kelly

University of Chicago - Finance; 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: April 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 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.

Suggested Citation

Balakrishnan, Karthik and Billings, Mary Brooke and Kelly, Bryan T. and Ljungqvist, Alexander, Shaping Liquidity: On the Causal Effects of Voluntary Disclosure (April 2013). NBER Working Paper No. w18984. Available at SSRN: https://ssrn.com/abstract=2254236

Karthik Balakrishnan (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Mary Brooke Billings

New York University ( email )

44 West 4th Street
New York, NY NY 10012
United States
(212) 998-0097 (Phone)

Bryan T. Kelly

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Alexander Ljungqvist

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

Stern School of Business
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New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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