Political Uncertainty and Firm Disclosure
68 Pages Posted: 17 Jul 2017 Last revised: 12 Feb 2019
Date Written: July 31, 2018
We find that heightened policy uncertainty from gubernatorial elections negatively affects the market quality of local firms. Election firms respond by providing more frequent and informative voluntary disclosures to investors and analysts. While prior work shows that governor elections dampen firm investment and capital raising, we show that that the increase in voluntary disclosure stems from firms without a pause in mandatory SEC disclosures related to such activities. Cross-sectional tests show that voluntary disclosure increases are greater for firms with more investment, higher external demand for information, and lower proprietary disclosure costs. Our paper demonstrates a setting where managers respond to the effects of transitory uncertainty by increasing transparency.
Keywords: Political Uncertainty, Information Environment, Information Asymmetry, Voluntary Disclosure, Mandatory Disclosure
JEL Classification: D82, G14, G38, M41
Suggested Citation: Suggested Citation