Does Voluntary Disclosure Improve Stock Price Informativeness?

K. Stephen Haggard · Xiumin Martin · Raynolde Pereira

191 citations0/0 files storedFinancial Management

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Corporate Finance and Governance

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.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 1980On the Impossibility of Informationally Efficient Markets 1980On the Impossibility of Informationally Efficient Markets 1997Disclosure level and the cost of equity capital.2000The information content of stock markets: why do emerging markets have synchronous stock price movements?2004Information and the Cost of Capital 2005R2 around the world: New theory and new tests☆

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