Capital Market Implications of Corporate Disclosure: German Evidence

Abstract

This paper investigates the relationship between annual report disclosure, market liquidity, and capital cost for firms registered on the Deutsche Börse. Disclosure is comprehensively measured using the innovative Artificial Intelligence Measurement of Disclosure (AIMD). Results show that annual report disclosure enhances market liquidity by changing investors’ expectations and inducing portfolio adjustments. Trading frictions are negatively associated with disclosure. The study provides evidence for a capital-cost-reduction effect of disclosure based on the analysis of investors’ return requirements and market values. Altogether, no evidence is found that the information processing at the German capital market is structurally different from other markets.

Let’s talk strategy: the impact of voluntary strategy disclosure on the cost of equity capital

“…Empirical support for this notion is provided by Glosten and Harris (1988), Welker (1995), Coller and Yohn (1997), Healy et al (1999) or Leuz and Verrecchia (2000). Second, it follows from the literature that less information asymmetry induced by increased disclosure is also associated with increased trading volumes (Frankel et al 1999;Healy et al 1999;Leuz and Verrecchia 2000;Grüning 2011).…”

“…In a similar vein, Cuijpers and Buijink (2005) do not find any cost of equity capital effects for a sample of 133 firms voluntarily adopting non-local GAAP within the European Union in 1999. Finally, Grüning (2011) provides mixed evidence, finding higher disclosure levels to be associated with increased share turnover, smaller bidask spreads and increased market capitalization, but no direct association with cost of equity capital for 556 German Prime Standard firms in 2006.…”

“…In addition to analyzing the direct association between the levels of voluntary strategy disclosure in the management report and the cost of equity capital, we also study its relationship with firms' bid-ask spreads and trading volume of shares (e.g., Glosten and Milgrom 1985;Leuz and Verrecchia 2000;Grüning 2011). Both variables tend to react to increased levels of voluntary strategy disclosures (Wagenhofer and Ewert 2007: 408).…”

“…Some papers use available archival metrics on disclosure rankings, e.g., AIMR data (e.g., Lang and Lundholm 1993;Healy et al 1999;Lundholm 2000 or Botosan andPlumlee 2002). Others use self-constructed scores that are based on a normative understanding of 'comprehensive' disclosures (e.g., Hossain et al 1995;Gray et al 1995;Botosan 1997;Hail 2002;Jones 2007;Grüning 2011).…”

Disclosure of Financial Statements and Its Effect on Investor’s Decision Making in Jordanian Commercial Banks

“…According to Muinde (2013) financial statement is a standard practice of any organization to be prepared in a clear form for stakeholders in agreement with the board authority that regulates accounting information. In addition, Easley (2010) and Grüning (2011) state that the information included within the financial reports must be well-prepared and consist of high level of disclosure. This involves disclosure inside and outside the financial statements whether they were financial or non-financial information.…”