eThesis - School of Business electronic theses

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Purpose of the study

I study the effect of continuous and voluntary disclosure levels on bid-ask spreads, share liquidity and analyst forecast dispersion, three measures indicating the level of information asymmetry in the securities markets, in the framework of the financial crisis in 2008. I aim at examining:

1. Which firm and market characteristics explain continuous and especially voluntary disclosure levels of a public company? 2. Do high continuous and voluntary disclosure levels reduce information asymmetry in the securities markets?

My paper adds to the small body of research on continuous and voluntary disclosure, where I see disclosure as an integral part of strategic Investor Relations. Previous research has mainly focused on disclosure levels’ relations with share behaviour using annual reports and other regulatory disclosure as proxies. Continuous and voluntary disclosure is yet to be studied in more detail, especially in crisis situations.

Empirical study and data

To measure information asymmetry, I use bid-ask spreads, share liquidity and standard deviations of analyst forecasts for all firms listed in Nasdaq OMX Helsinki Stock Exchange in 2007-2008. I use stock exchange releases from this period as a proxy for continuous and voluntary disclosure levels. First, I explain these levels using an OLS regression analysis. Second, I look for evidence for a negative relation of continuous and voluntary disclosure with information asymmetry. I use an IV regression as a method for analysing the aforementioned relations where endogenous disclosure variables are instrumented by relevant firm and market variables.

Main results

I find firm size, growth, complexity and private debt to explain continuous disclosure and firm size, profitability, private debt, appreciation of IR and experience from the securities markets to explain voluntary disclosure. I use these variables as instruments for the disclosure levels in the IV regressions and gain both supporting and contrary evidence to hypotheses that continuous and voluntary disclosures reduce information asymmetry. Continuous disclosure narrows bid-ask spreads, both disclosure measures increase share liquidity but neither succeeds in decreasing the dispersion of analyst forecasts. Disclosure is not evidenced to play a greater role in the financial crisis.