The Effect of Economic Policy Uncertainty on Investor Information Asymmetry and Management Disclosures

55 Pages Posted: 22 Sep 2016 Last revised: 19 Jun 2018

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

Georgetown University, McDonough School of Business

Laura Wellman

University of Utah - David Eccles School of Business

Date Written: June 19, 2018

Abstract

Investor uncertainty about firm value drives investors' information collection and trading activities, as well as managers' disclosure choices. This study examines an important source of uncertainty that likely cannot be significantly influenced by most individual managers and investors, namely uncertainty about government economic policy. We find that this uncertainty is associated with increased bid-ask spreads and decreased stock price reactions to earnings surprises. Managers respond to this uncertainty by increasing their voluntary disclosures, but these disclosures only partly mitigate the bid-ask spread increase. These findings are consistent across a variety of empirical specifications. We conclude that government economic policy uncertainty is an important component of firms' information environments and managers' voluntary disclosure decisions.

Keywords: Corporate Disclosure; Economic Policy Uncertainty; Information Asymmetry

JEL Classification: D80, E61, E65, G12, G14, G18, L50

Suggested Citation

Nagar, Venky and Schoenfeld, Jordan and Wellman, Laura, The Effect of Economic Policy Uncertainty on Investor Information Asymmetry and Management Disclosures (June 19, 2018). Ross School of Business Paper No. 1333. Available at SSRN: https://ssrn.com/abstract=2841442 or http://dx.doi.org/10.2139/ssrn.2841442

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Jordan Schoenfeld (Contact Author)

Georgetown University, McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Laura Wellman

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
315
rank
86,806
Abstract Views
1,098
PlumX