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

55 Pages Posted: 22 Sep 2016 Last revised: 17 Aug 2018

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

Georgetown University, McDonough School of Business

Laura Wellman

Pennsylvania State University

Date Written: August 16, 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 influenced by most managers and investors: 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. 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 (August 16, 2018). Journal of Accounting & Economics (JAE), Forthcoming. 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

Pennsylvania State University ( email )

378 Business Building
University Park, PA 16802
United States
6026225683 (Phone)

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