Opacity, liquidity and disclosure requirements

Abstract

We present a model that links the opacity of an asset to its liquidity. We show that while low-opacity assets are liquid, intermediate levels of opacity provide incentives for investors to acquire private information, causing adverse selection and illiquidity. High opacity, however, benefits liquidity by reducing the value of a unit of private information.The cross-section of bid-ask spreads of US firms is shown to be broadly consistent with this hump-shaped relationship between opacity and illiquidity. Our analysis suggests that uniform disclosure standards may be suboptimal; efficient disclosure can instead be achieved through a two-tier standard system or by subsidizing voluntary disclosure.

Environmental reputation and bank liquidity: Evidence from climate transition

“…In our study, we explore another important factor seemingly unrelated to panic‐ or fundamental‐based bank runs that may affect depositors’ behaviors, namely nonfinancial signals about a bank's environmental reputation, along with regional exposure to severe climate change risks. Our study also relates to that of Stenzel and Wagner (2021), who document the hump‐shaped relationship between the opacity of an asset and its liquidity, as our findings also link media coverage of bank‐specific information to bank deposit changes.…”

The information spillover role of corporate spin‐offs in financing activities: Evidence from equity sales by private firms through Regulation D

“…SEC Commissioner Allison Lee called for a public debate about more disclosures by large-scale private firms because "they can have a huge impact on thousands of people's lives with absolutely no visibility for investors, employees and their unions, regulators, or the public"(Kiernan, 2022). Interestingly,Stenzel and Wagner (2022) suggest that a two-tier disclosure system-more (less) stringent regulation for relatively transparent (opaque) firms-may be socially optimal.…”