Information Externalities Among Listed Firms

66 Pages Posted: 15 Mar 2021 Last revised: 7 Dec 2021

See all articles by Jae Hyoung Kim

Jae Hyoung Kim

Swedish House of Finance; Stockholm School of Economics

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Date Written: December 6, 2021

Abstract

We establish the presence of sizeable information externalities across firms listed on U.S. stock exchanges. To identify externalities, we use staggered non-marginal increases in disclosure at peer firms that are unaccompanied by changes in mandatory disclosure at focal firms. We find that a peer firm’s mandatory disclosure improves the focal firm’s trading liquidity directly by reducing information asymmetry and indirectly by crowding in both voluntary disclosure and analyst information production at the focal firm. Positive information externalities, and the complementarities they operate through, support regulators’ use of mandatory disclosure to improve the market-wide information environment.

Keywords: Mandatory disclosure, voluntary disclosure, information externalities, information environments, strategic interaction, liquidity

JEL Classification: G14, M41, G38, D82

Suggested Citation

Kim, Jae Hyoung and Ljungqvist, Alexander and Ljungqvist, Alexander, Information Externalities Among Listed Firms (December 6, 2021). Swedish House of Finance Research Paper No. 21-07, Available at SSRN: https://ssrn.com/abstract=3804235 or http://dx.doi.org/10.2139/ssrn.3804235

Jae Hyoung Kim

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Alexander Ljungqvist (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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