54 Pages Posted: 20 Apr 2013
Date Written: April 2013
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: 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