Shaping Liquidity: On the Causal Effects of Voluntary Disclosure
47 Pages Posted: 10 Sep 2013
Date Written: December 2011
Can managers influence the liquidity of their 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 are greatest when firms lose local information producers and appear motivated by a desire to communicate with retail investors. Liquidity improves as a result of voluntary disclosure.
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