Does Voluntary Disclosure Improve Stock Price Informativeness?

Abstract

"According to theory, comovement in stock prices reflects comovement in the fundamental factors underlying the values of stocks. Recent theory contends that stock price comovement can be driven by information markets or the informational opacity of the firm. To the extent that voluntary disclosure reduces information acquisition cost and enhances firm transparency, we predict that enhanced voluntary disclosure reduces stock price comovement. We provide evidence in support of this prediction using analyst evaluation of firm disclosure policy. Overall, our evidence supports the effectiveness of firm disclosure policy in increasing the amount of firm-specific information contained in stock returns." Copyright (c) 2008 Financial Management Association International..

Geographic location, excess control rights, and cash holdings

“…We furthermore employ the Fama-MacBeth estimation with Newey-West standard errors (Column 3). This approach accounts for serial correlation using a first-order autoregressive process (Haggard et al, 2008;Jin and Myers, 2006). Our findings remain consistent with the notion that distance positively affects the cash holdings of firms with a large separation of cash-flow rights and control rights.…”

Sources of target stock price run-up prior to acquisitions

“…We adapt theories by Huddart and Ke (2007), Haggard et al (2008), and Dasgupta, Gan, and Gao (2010) to propose why prospective target firms with higher levels of asymmetric information should experience more pronounced information leakages prior to a public acquisition bid. There may be more opportunities for traders to acquire useful private information about these firms prior to a publicized bid, because there is very limited public information available.…”

“…Specifically, studies by Huddart and Ke (2007) and Haggard, Martin, and Pereira (2008) suggest that when there is a high degree of asymmetric information between firms and investors prior to public earnings guidance, the firms are subject to greater information leakages prior to the public announcement. We adapt the asymmetric information theory to suggest that the degree of transparency varies substantially among target firms because of differences in operations, different degrees of information disclosed by firms, and different degrees of monitoring by analysts.…”

Stock price synchronicity and public firm-specificinformation

“…Morck, Yeung, and Yu (2000), Jin and Myers (2006), and Haggard, Martin, and Pereira (2008) find that stock price synchronicity is negatively related to the quality of information environment, thereby suggesting that R 2 can be an inverse proxy for information quality. In sharp contrast, Kelly (2005) and Dasgupta, Gan, and Gao (forthcoming) show that stock price synchronicity is positively related to the quality of the information environment, implying that R 2 can be a direct proxy for this quality.…”