Journal ArticleDOI
Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?*
Mark H. Lang,Russell J. Lundholm +1 more
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TLDR
In this paper, the authors examine corporate disclosure activity around seasoned equity offerings and its relationship to stock prices and find that firms that maintain a consistent level of disclosure experience price increases prior to the offering, and only minor price declines at the offering announcement relative to the control firms, suggesting that disclosure may have reduced the information asymmetry inherent in the offering.Abstract:
We examine corporate disclosure activity around seasoned equity offerings and its relationship to stock prices. Beginning six months before the offering, our sample issuing firms dramatically increase their disclosure activity, particularly for the categories of disclosure over which firms have the most discretion. The increase is significant after controlling for the firm's current and future earnings performance and tends to be largest for firms with selling shareholders participating in the offering. However, there is no change in the frequency of forward-looking statements prior to the equity offering, something that is expressly discouraged by the securities law.
Firms that maintain a consistent level of disclosure experience price increases prior to the offering, and only minor price declines at the offering announcement relative to the control firms, suggesting that disclosure may have reduced the information asymmetry inherent in the offering. Firms that substantially increase their disclosure activity in the six months before the offering also experience price increases prior to the offering relative to the control firms, but suffer much larger price declines at the announcement of their intent to issue equity, suggesting that the disclosure increase may have been used to “hype the stock” and the market may have partially corrected for the earlier price increase. Firms that maintain a consistent disclosure level have no unusual return behavior relative to the control firms subsequent to the announcement, while the firms that “hyped” their stock continue to suffer negative returns, providing further evidence that the increased disclosure activity may have been hype, and suggesting that the hype may have been successful in lowering the firms' cost of equity capital.read more
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Journal ArticleDOI
Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature
TL;DR: Corporate disclosure is critical for the functioning of an efficient capital market as mentioned in this paper, and firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings.
Journal ArticleDOI
The Economic Consequences of Increased Disclosure
TL;DR: In this paper, the authors study German firms that have switched from the German to an international reporting regime (1AS or U.S. GAAP) and show that proxies for the information asymmetry component of the cost of capital for the switching firms, namely, the bid-ask spread and trading volume behave in the predicted direction compared to firms employing the German reporting regime.
Journal ArticleDOI
Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure
TL;DR: In this article, the authors investigated whether firms benefit from expanded voluntary disclosure by examining changes in capital market factors associated with increases in analyst disclosure ratings for 97 firms and found that expanded disclosure leads investors to revise upward valuations of the sample firms' stocks, increases stock liquidity, and creates additional institutional and analyst interest in the stocks.
Journal ArticleDOI
Conflict of Interest and the Credibility of Underwriter Analyst Recommendations
Roni Michaely,Kent L. Womack +1 more
TL;DR: The authors show that stocks that underwriter analysts recommend perform more poorly than "buy" recommendations by unaffiliated brokers prior to, at the time of, and subsequent to the recommendation date.
Journal ArticleDOI
The Financial Reporting Environment: Review of the Recent Literature
TL;DR: The authors provide a framework for analyzing the three main decisions that shape the corporate information environment in a capital markets setting: (1) managers' voluntary reporting and disclosure decisions, (2) reporting and disclosures mandated by regulators, and (3) reporting decisions by third-party intermediaries.
References
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Journal ArticleDOI
Corporate financing and investment decisions when firms have information that investors do not have
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.
Journal Article
Disclosure level and the cost of equity capital
TL;DR: In this paper, the authors examined the relationship between disclosure level and the cost of equity capital by regressing firm-specific estimates of cost of capital on market beta, firm size and a self-constructed measure of disclosure level.
Journal ArticleDOI
The New Issues Puzzle
Tim Loughran,Jay R. Ritter +1 more
TL;DR: In this paper, the authors show that companies issuing stock during 1970 to 1990, whether an initial public offering (IPO) or a seasoned equity offering (SEO), significantly underperform relative to nonissuing firms for five years after the offering date.
Journal ArticleDOI
Cross- sectional determinants of analyst ratings of corporate disclosures
Mark H. Lang,Russell J. Lundholm +1 more
TL;DR: This paper examined cross-sectional variation in analysts' published evaluations of firms' disclosure practices and provided evidence that the analysts' ratings are increasing in firm size and in firm performance as measured by earnings and return variables, decreasing in the correlation between earnings and returns, and higher for firms issuing securities in the current or future period.
Posted Content
Corporate Disclosure Policy and Analyst Behavior
Mark H. Lang,Russell J. Lundholm +1 more
TL;DR: In this article, the authors examine the relation between the disclosure practices of firms, the number of analysts following each firm, and properties of the analysts' earnings forecasts and find that firms with more informative disclosure policies have a larger analyst following, more accurate analyst earnings forecasts, less dispersion among individual analyst forecasts and less volatility in forecast revisions.
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