Working Paper: NBER ID: w18984
Authors: Karthik Balakrishnan; Mary B. Billings; Bryan T. Kelly; Alexander Ljungqvist
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 seek to actively shape their information environments by voluntarily disclosing more information than is mandated by market regulations and that such efforts have a sizeable and beneficial effect on 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 of voluntary disclosure and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure.
Keywords: voluntary disclosure; liquidity; cost of capital
JEL Codes: G12; G24; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| voluntary disclosure (G38) | cost of capital (G31) |
| lagged coverage shocks (E32) | voluntary disclosure (G38) |
| voluntary disclosure (G38) | liquidity (E41) |
| coverage terminations (G52) | voluntary disclosure (G38) |
| coverage terminations (G52) | liquidity (E41) |