Shaping liquidity: On the causal effects of voluntary disclosure

Balakrishnan, K and Billings, M B and Kelly, B and Ljungqvist, A (2014) Shaping liquidity: On the causal effects of voluntary disclosure. Journal of Finance, 69 (5). pp. 2237-2278. ISSN 0022-1082

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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.

Item Type: Article
Additional Information: © 2014 the American Finance Association
Subject Areas: Accounting
DOI: 10.1111/jofi.12180
Date Deposited: 02 Mar 2016 18:51
Last Modified: 22 Mar 2016 19:25

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