Asymmetric Effects of Voluntary Disclosure on Stock Liquidity: Evidence from 8-K Filings

Abstract

This paper examines whether the change in stock liquidity subsequent to voluntary disclosure is different between good news and bad news. Using voluntary 8-K filings, we find that the increase in stock liquidity is more pronounced for firms with good news disclosure than for firms with bad news disclosure. In addition, such findings are stronger when a firm is less visible and when the short-selling costs are high, suggesting that these two factors play an important role in increasing stock liquidity. Overall, this paper provides evidence that the tone of voluntary 8-K news is an important determinant of stock liquidity.

Keywords: 8-K filings, Voluntary disclosure, Stock liquidity, Textual analysis, Disclosure tone

JEL Classification: G12, G14