Risk Disclosure, Liquidity, and Investment Efficiency

52 Pages Posted: 4 Dec 2018 Last revised: 16 Jan 2019

See all articles by Kevin Smith

Kevin Smith

Stanford University Graduate School of Business

Date Written: November 9, 2018

Abstract

In this paper, I study the impact of a firm's risk disclosure on investors' desire to acquire information about the firm. I first show that risk disclosure complements private learning by enabling sophisticated investors to acquire information when it is most lucrative to do so, thereby reducing liquidity. Next, in a setting in which investors possess information regarding the profitability of the firm's potential investments, I show that risk disclosure affects the firm's investment efficiency by influencing the usefulness of the information that the firm derives from its share price. Finally, I demonstrate that risk disclosure can reduce the firm's expected level of investment and therefore its expected risk.

Keywords: Risk Disclosure, Liquidity, Investment Efficiency

JEL Classification: M41, G10, G12, G14

Suggested Citation

Smith, Kevin, Risk Disclosure, Liquidity, and Investment Efficiency (November 9, 2018). Stanford University Graduate School of Business Research Paper No. 19-8. Available at SSRN: https://ssrn.com/abstract=3282057 or http://dx.doi.org/10.2139/ssrn.3282057

Kevin Smith (Contact Author)

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
97
rank
265,715
Abstract Views
615
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information