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Shaping Liquidity: On the Causal Effects of Voluntary Disclosure
Author(s) -
BALAKRISHNAN KARTHIK,
BILLINGS MARY BROOKE,
KELLY BRYAN,
LJUNGQVIST ALEXANDER
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12180
Subject(s) - market liquidity , voluntary disclosure , mandate , business , earnings , information asymmetry , monetary economics , public information , turnover , value (mathematics) , accounting , finance , economics , public relations , management , machine learning , political science , computer science , law
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.