Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

Can managers influence the liquidity of their firms' shares? We use plausibly exogenous variation in the supply of public information to show that firms actively shape their information environments by voluntarily disclosing more information than regulations mandate and that such efforts improv...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of finance (New York) 2014-10, Vol.69 (5), p.2237-2278
Main Authors: BALAKRISHNAN, KARTHIK, BILLINGS, MARY BROOKE, KELLY, BRYAN, LJUNGQVIST, ALEXANDER
Format: Article
Language:English
Subjects:
Analytical forecasting
Capital costs
Cost of capital
Disclosure
Earnings announcements
Earnings forecasting
Firm value
Information
Information asymmetry
Information management
Institutional investors
Instrumental variables estimation
Investment advisors
Investors
Liquidity
Managers
Placebos
Shock tests
Studies
Termination shock
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Can managers influence the liquidity of their firms' shares? We use plausibly exogenous variation in the supply of public information to show that firms actively shape their information environments by voluntarily disclosing more information than regulations mandate and that such efforts improve liquidity. Firms respond to an exogenous loss of public information by providing more timely and informative earnings guidance. Responses appear motivated by a desire to reduce information asymmetries between retail and institutional investors. Liquidity improves as a result and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12180