Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

Karthik Balakrishnan, Mary Brooke Billings, Bryan Kelly and Alexander Ljungqvist ()

Journal of Finance, 2014, vol. 69, issue 5, 2237-2278

Abstract: type="main">

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.

Date: 2014
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Working Paper: Shaping Liquidity: On the Causal Effects of Voluntary Disclosure (2013)
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