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Shaping Liquidity: On the Causal Effects of Voluntary Disclosure

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  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18984.

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Date of creation: Apr 2013
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Handle: RePEc:nbr:nberwo:18984

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Cited by:
  1. Kerry Back & Tao Li & Alexander Ljungqvist, 2013. "Liquidity and Governance," NBER Working Papers 19669, National Bureau of Economic Research, Inc.
  2. Kim, Abby, 2014. "The value of firms' voluntary commitment to improve transparency: The case of special segments on Euronext," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 342-359.
  3. Dong, Ming, 2014. "The impact of firm-level transparency on the ex ante risk decisions of insurers: Evidence from an empirical study," ICIR Working Paper Series 14/14, International Center for Insurance Regulation (ICIR), Goethe University Frankfurt.

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