Asymmetric Effects of Voluntary Disclosure on Stock Liquidity: Evidence from 8-K Filings

• In Event: Research with an Impact on Scholarship: Disclosure and IPO's

Abstract

This paper examines whether the change in stock liquidity subsequent to voluntary disclosure is different between good news and bad news. Using voluntary 8-K filings, we find that the increase in stock liquidity is more pronounced for firms with good news disclosure than for firms with bad news disclosure. In addition, the asymmetric effects of disclosure news on liquidity are stronger when a firm is less visible to investors and when the short-selling costs are high, suggesting that firm invisibility and short-sale constraints paly a substitutive role in increasing stock liquidity. Overall, this paper provides evidence that the direction of voluntary news is an important determinant of stock liquidity surrounding the voluntary 8-K filings.

Authors

• Hyunkwon Cho, Sejong University

• Robert Kim, University of Massachusetts-Boston