Local Policy Uncertainty and Firm Disclosure

Abstract

We explore how managers adjust voluntary disclosure in response to local policy uncertainty generated by gubernatorial elections. We show that the securities of firms headquartered in election states experience transitory deterioration in firm-level measures of uncertainty and information asymmetry in the months prior to the election. Managers respond to local policy uncertainty by providing more frequent and informative voluntary disclosures, but only when they do not reduce real activities. Cross-sectional tests indicate that voluntary disclosure increases more for firms with higher external demand for information from analysts and institutional investors, more investment, and lower disclosure costs.

Keywords: Political Uncertainty, Information Environment, Information Asymmetry, Voluntary Disclosure, Mandatory Disclosure

JEL Classification: D82, G14, G38, M41