The Effect of Exogenous Information on Voluntary Disclosure and Market Quality

41 Pages Posted: 14 Aug 2018 Last revised: 27 Oct 2019

See all articles by Sivan Frenkel

Sivan Frenkel

Tel Aviv University - Coller School of Management

Ilan Guttman

Leonard N. Stern School of Business, New York University; New York University - Stern Scholl of business

Ilan Kremer

University of Warwick

Date Written: October 6, 2019

Abstract

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

Frenkel, Sivan and Guttman, Ilan and Kremer, Ilan, The Effect of Exogenous Information on Voluntary Disclosure and Market Quality (October 6, 2019). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3211173 or http://dx.doi.org/10.2139/ssrn.3211173

Sivan Frenkel (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

HOME PAGE: http://https://sites.google.com/site/sivanfrenkel/

Ilan Guttman

Leonard N. Stern School of Business, New York University ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University - Stern Scholl of business ( email )

Ilan Kremer

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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