The Effect of Exogenous Information on Voluntary Disclosure and Market Quality
41 Pages Posted: 14 Aug 2018 Last revised: 27 Oct 2019
Date Written: October 6, 2019
We analyze a model in which information may be voluntarily disclosed by a firm and/or by a third party, e.g., financial analysts. Due to its strategic nature, corporate voluntary disclosure is qualitatively different from third-party disclosure. Greater analyst coverage crowds out (crowds in) corporate voluntary disclosure when analysts mostly discover information that is available (unavailable) to the firm. Nevertheless, greater analyst coverage always improves the overall quality of public information. We base this claim on two market quality measures: price efficiency, which is statistical in nature, and liquidity, which is derived in a trading stage that follows the disclosure stage.
Keywords: Information Disclosure, Voluntary Disclosure, Price Efficiency, Liquidity, Analysts
JEL Classification: G14, D82, D83
Suggested Citation: Suggested Citation