Price Discovery in Good and Bad Times: An Analysis of the Annual Corporate Disclosure Cycle

76 Pages Posted: 12 Jun 2019 Last revised: 12 Sep 2019

See all articles by Edward Xuejun Li

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy

K. Ramesh

Rice University

Min Shen

City University of New York - Stan Ross Department of Accountancy

Joanna S. Wu

University of Rochester - Simon Business School

Date Written: September 10, 2019

Abstract

Prior research on strategic corporate disclosure in good times versus bad often produces divergent inferences when focusing on selected channels and different disclosure windows. In this paper, we instead study a comprehensive set of corporate disclosure channels over the annual disclosure cycle. Our approach enables us to quantify disclosure channels’ aggregate and individual impacts on price discovery in good news versus bad news years. At the aggregate level, we estimate that overall price discovery reaches the 50% mark more than two weeks sooner in good news years than in bad news years, and corporate disclosures account for roughly twice the price discovery in good news years (80%) than in bad news years (42%). At the individual level, earnings guidance, preannouncements, and periodic SEC filings contribute more in bad news years, while general press releases and reports of insider purchases drive the bulk of price discovery in good news years. We also find that in bad news years, positively-toned press releases substantially purge the price discovery effects of adverse news, with reports of insider purchases more than offsetting the effects of reports of insider sales. Furthermore, we estimate that information intermediaries’ overall contribution to price discovery is modest relative to firm disclosures, with analysts adding more to bad news while the media contributing more to good news. Collectively, by taking a holistic approach and focusing on the annual disclosure cycle, we provide novel evidence on the distinct dynamics of corporate disclosures in general and in individual channels, as well as their impact on firm information environment.

Keywords: Disclosure, Price Discovery, Good vs. Bad News

JEL Classification: G10, G12, M41

Suggested Citation

Li, Edward Xuejun and Ramesh, K. and Shen, Min and Wu, Joanna, Price Discovery in Good and Bad Times: An Analysis of the Annual Corporate Disclosure Cycle (September 10, 2019). Baruch College Zicklin School of Business Research Paper No. 2019-06-02. Available at SSRN: https://ssrn.com/abstract=3394544 or http://dx.doi.org/10.2139/ssrn.3394544

Edward Xuejun Li (Contact Author)

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3235 (Phone)

K. Ramesh

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

Min Shen

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3230 (Phone)

Joanna Wu

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160D
Rochester, NY 14627
United States
585-275-5468 (Phone)
585-442-6323 (Fax)

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