, Volume 38, Issue 4, pp 411-440

Disclosure frequency and information asymmetry

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Abstract

The main purpose of this paper is to investigate whether more frequent disclosure by firms is associated with lower levels of information asymmetry among investors. Using a panel of 386 firms in the US retail sector, I find that the practice of regularly providing monthly revenue disclosures is not associated with reduced information asymmetry. In contrast, I find that more detailed (greater quantity) disclosure is associated with reduced information asymmetry. I provide preliminary evidence that the distinction between disclosure frequency and disclosure quantity is due to more frequent disclosure providing an incentive for increased private information acquisition by sophisticated investors. The results indicate that the relation between disclosure and information asymmetry is multi-dimensional and varies depending on the disclosure attribute being studied.

This paper is based on my dissertation at the University of Pennsylvania and was formerly titled “Capital Market Effects of More Frequent Disclosure.” I thank the members of my committee, John Core (chair), Wayne Guay, David Larcker, Christian Leuz, and Andrew Metrick, for their many insightful comments and suggestions. I also thank Phil Berger, Robert Holthausen, Jonathan Rogers, Cathy Schrand, Robert Verrecchia, and seminar participants at Dartmouth College, Duke University, Harvard University, M.I.T., Northwestern University, Pennsylvania State University, the University of Chicago, the University of Michigan, the University of Pennsylvania, the University of Rochester, and the University of Southern California for helpful comments and suggestions. I am grateful to the Deloitte Foundation for financial support.