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Political Uncertainty and Corporate Transparency

44 Pages Posted: 16 Jun 2017 Last revised: 8 Jul 2017

Andrew Bird

Carnegie Mellon University - Tepper School of Business

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business

Date Written: July 6, 2017

Abstract

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

Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Political Uncertainty and Corporate Transparency (July 6, 2017). Available at SSRN: https://ssrn.com/abstract=2986678

Andrew Bird

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Stephen A. Karolyi (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
4122682909 (Phone)

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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