Do Firms Benefit from Expanded Voluntary Disclosure?

Posted: 28 Aug 1995

See all articles by Paul M. Healy

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Amy P. Hutton

Boston College - Carroll School of Management

Abstract

This paper examines the causes and consequences of expanded disclosure for 90 firms with increased analyst disclosure ratings. Our evidence suggests that managers expand disclosure when they believe their firms are undervalued. Undervaluation is costly for the sample firms because it reduces their financial flexibility in making new public issues and lowers the value of outstanding management stock options. Following the increase in disclosure there is a reduction in undervaluation accompanied by an increase in stock liquidity analyst following and institutional holdings. This evidence suggests that for our sample firms expanded disclosure lowers their costs of capital.

JEL Classification: M41, G14

Suggested Citation

Healy, Paul M. and Palepu, Krishna and Hutton, Amy P., Do Firms Benefit from Expanded Voluntary Disclosure?. Available at SSRN: https://ssrn.com/abstract=55451

Paul M. Healy

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Krishna Palepu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6759 (Phone)
617-496-7363 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=6527

Harvard University - David Rockefeller Center for Latin American Research ( email )

1730 Cambridge St.
Cambridge, MA 02138
United States

HOME PAGE: http://www.drclas.harvard.edu/faculty/directory/professors/view/150

Harvard Business Review ( email )

Boston, MA
United States

HOME PAGE: http://hbr.org/authors/palepu

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/krishna_palepu

International Academy of Management ( email )

Avenida Pearson 21
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Spain

HOME PAGE: http://theiam.ws/?person=palepu-krishna

Amy P. Hutton (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617 552 1951 (Phone)

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