Does the Arrival of Investment Opportunities Promote or Deter Firm Disclosures? Evidence from Medicare National Coverage Decisions

47 Pages Posted: 16 Jun 2017 Last revised: 29 Jun 2017

See all articles by Yuan Ji

Yuan Ji

The Hong Kong Polytechnic University

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Tharindra Ranasinghe

American University

Date Written: June 15, 2017

Abstract

Although the arrival of investment opportunities increases the demand for information, it is also likely to exacerbate disclosure costs. This study examines the relationship between the arrival of investment opportunities and firm disclosures in the context of Medicare national coverage decisions (NCD), which create staggered changes to the investment opportunities available to different subsets of firms in the medical device industry. Consistent with disclosure costs being the dominant effect, we find that NCD approvals are associated with reductions in management forecasts, disclosures about R&D, and product-related announcements. Additional cross-sectional analyses suggest that greater reputation and proprietary cost concerns are important determinants of this negative association. We find that information intermediaries increase their coverage of firms following NCD approvals. Yet, overall, the greater investment opportunities due to NCD approvals appear to have a negative effect on firms’ information environment: NCD approvals are followed by higher analyst forecast dispersion, greater bid-ask spreads, and decreased stock liquidity.

Keywords: Voluntary disclosure, Investment opportunities, Medicare national coverage decisions, Financial intermediaries, Information environment

JEL Classification: D82, D83, G19, M40, M41

Suggested Citation

Ji, Yuan and Ng, Jeffrey and Ranasinghe, Tharindra, Does the Arrival of Investment Opportunities Promote or Deter Firm Disclosures? Evidence from Medicare National Coverage Decisions (June 15, 2017). Available at SSRN: https://ssrn.com/abstract=2987066 or http://dx.doi.org/10.2139/ssrn.2987066

Yuan Ji

The Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon, Hong Kong
Hong Kong

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tharindra Ranasinghe (Contact Author)

American University ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
845
rank
403,264
PlumX Metrics