Political Uncertainty and Corporate Transparency
44 Pages Posted: 16 Jun 2017 Last revised: 8 Jul 2017
Date Written: July 6, 2017
We examine the effect of political uncertainty on corporate transparency and market quality using gubernatorial elections as a source of plausibly exogenous variation in uncertainty. Despite real activity falling in the years leading up to a close election, voluntary disclosure, measured by the frequency and content of voluntary 8-K filings and managerial guidance, increases. These effects are stronger before elections in which the incumbent has termed out or with recent party flipping, and reverse after the election. We find that political uncertainty increases trading costs and reduces analyst information production, which firms mitigate by increasing transparency.
Keywords: Corporate Transparency, Political Uncertainty, Liquidity, Voluntary Disclosure, Earnings Forecasts
JEL Classification: D72, G14, G18, G34
Suggested Citation: Suggested Citation