The Causal Effect of Market Transparency on Corporate Disclosure
54 Pages Posted: 31 May 2019 Last revised: 25 Jun 2019
Date Written: June 2019
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 that firms provide more guidance when their bonds’ trading becomes observable. This effect is stronger for firms whose bond prices and trading are expected to contain more incremental information, and the additional disclosures tend to contain bad news. I corroborate my results using a small randomized controlled experiment conducted by the NASD. My results are consistent with the notion that investors’ access to market information limits managers’ incentives to withhold information and have important implications for regulators concerned with the transparency of financial markets.
Keywords: Market Transparency, TRACE, Corporate Disclosure, Bond Market
JEL Classification: M48, G18, G28, G38, D83
Suggested Citation: Suggested Citation