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Firms, Markets, and Information Disclosure
Friday, Jan. 7, 2022
10:00 AM - 12:00 PM (EST)
American Finance Association
University of Pennsylvania
Information Externalities among Listed Firms
We establish the presence of sizeable information externalities across firms listed on U.S. stock exchanges. To identify externalities, we use staggered non-marginal increases in disclosure at peer firms that are unaccompanied by changes in mandatory disclosure at focal firms. We find that a peer firm’s mandatory disclosure improves the focal firm’s trading liquidity directly by reducing information asymmetry and indirectly by crowding in both voluntary disclosure and analyst information production at the focal firm. Positive information externalities, and the complementarities they operate through, support regulators’ use of mandatory disclosure to improve the market-wide information environment.
Disclosing to Informed Traders
We develop a model of voluntary disclosure in the presence of diversely-informed investors. The manager's disclosure strategy influences trading by investors, which in turn affects the manager's incentives to disclose. We document conditions under which there exists a unique equilibrium where the manager discloses only sufficiently favorable news. This equilibrium exhibits two novel features. First, the firm is either over- or under-valued relative to fundamentals, depending on the likelihood the manager is informed and the cost of disclosure. Second, contrary to common intuition, mandatory disclosure can increase managers’ incentives to provide voluntary disclosures.
Climate Risk Disclosure and Institutional Investors
Employing firm disclosure theory, we develop hypotheses regarding the preferences of institutional investors with respect to firms’ climate-related disclosures. Through a survey and empirical tests, we test these hypotheses and provide systematic evidence suggesting that institutional investors value and demand climate-related disclosures, that climate-specific disclosure costs and benefits affect these disclosure demands, and that influence and selection effects explain the equilibrium relations between institutional ownership and disclosure. We establish evidence on the influence and selection effects of the climate-related disclosures by examining the French Article 173, the investor coalition Climate Action 100+, and the UK mandatory carbon disclosure regulation.
Information Disclosure and Peer Innovation: Evidence from Mandatory Reporting of Clinical Trials
Using the Food and Drug Administration Amendments Act of 2007 (FDAAA) that requires drug developers to disclose detailed clinical study results publicly, we examine the effect of information disclosure on subsequent innovation in drug development. We find significantly more suspensions of ongoing drug projects and fewer new project initiations after the FDAAA. These results have a causal interpretation based on difference-in-differences analyses that exploit different information environments before the FDAAA. We highlight a learning mechanism for the negative impact on innovation. We also present several consequences of enhanced information disclosure; while the FDAAA helps improve drug quality, it leads to more suspensions of potential new drugs that could have reduced mortality and morbidity.
University of Illinois
New York University