“The Effect of Exogenous Information on Voluntary Disclosure and Market Quality” – by Dr. Ilan Guttman
Accounting & Law Seminar
Dr. Ilan Guttman
Associate Professor of Accounting
Leonard N. Stern School of Business
Kaufman Management Center, New York University
We analyze a disclosure model in which information may be voluntarily disclosed by a firm and/or by a third party such as a financial analyst. Under plausible assumptions, analyst coverage crowds out disclosure by the firm. Despite this crowding out, we show that an increase in analyst coverage increases the quality of public information. While ranking based on Blackwell informativeness cannot be obtained, we base this claim on two measures of public information. The first, price efficiency, is statistical in nature while the second, expected bid-ask spread, is based on liquidity in a trading stage that follows the information disclosure.