The Effect of Market Transparency on Corporate Disclosure

58 Pages Posted: 31 May 2019 Last revised: 20 Nov 2019

See all articles by Georg Rickmann

Georg Rickmann

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: June 1, 2019

Abstract

I study how increased market transparency affects firms’ disclosure incentives. I exploit the staggered introduction of TRACE, which made bond prices and transactions publicly observable, and show firms provide more guidance when their bonds’ prices and trading become observable. This effect is stronger for firms with informationally sensitive bonds, and firms without exchange-listed bonds prior to TRACE. Also, firms become particularly more likely to disclose bad news, consistent with the notion that investors’ access to market information limits managers’ incentives to withhold information. I corroborate my results using a small controlled experiment, in which prices and trading are revealed for a randomized set of bonds. Taken together, my results suggest that observable market outcomes inform investors not only directly by aggregating and revealing investors’ information and beliefs, but also indirectly by increasing corporate disclosure.

Keywords: Market Transparency, TRACE, Corporate Disclosure, Bond Market

JEL Classification: M48, G18, G28, G38, D83

Suggested Citation

Rickmann, Georg, The Effect of Market Transparency on Corporate Disclosure (June 1, 2019). Available at SSRN: https://ssrn.com/abstract=3385114 or http://dx.doi.org/10.2139/ssrn.3385114

Georg Rickmann (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

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