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Shaping liquidity: On the causal effects of voluntary disclosure

Journal

Journal of Finance

Subject

Accounting

Publishing details

Journal of Finance 2014 Vol 69:5 p 2237-2278

Authors / Editors

Balakrishnan K;Billings M B;Kelly B;Ljungqvist A

Publication Year

2014

Abstract

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.

Available on ECCH

No


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