disclosure quality and information asymmetry（信息披露质量和信息不对称）.pdf

Disclosure Quality and Information Asymmetry∗ Stephen Brown# Stephen A. Hillegeist† December 2003 Abstract: We examine the association between firms’ disclosure quality and information asymmetry using a three-stage least squares estimation procedure that takes into account the endogeneity between these two variables. Our measure of information asymmetry is the Probability of Informed Trade (Easley, Kiefer and OHara [1997]), which measures the probability of information-based trade. Our primary result is that firms’ overall disclosure quality is negatively associated with information asymmetry. This negative association continues to hold for each of the three major components of disclosure quality, although the results are strongest for the quality of investor relations’ activities. Further analyses indicate that the underlying source of this negative association is a negative association between disclosure quality and the relative amount of trading by privately informed investors. Since prior work indicates that the cost of equity capital is increasing with information asymmetry, our results suggest that firms with higher disclosure quality have lower costs of capital. Key Words: Disclosure Quality; Information Asymmetry; Market Microstructure ∗ This paper has benefited from the comments and suggestions of Eli Bartov, Tarun Chordia, Paul Fisher, Simon Gervais, Ole-Kristian Hope, Ravi Jagannathan, Joseph Paperman, Gideon Sarr, Yong-Chul Shin, Sri Sridar, Beverly Walther, Greg Waymire, and seminar participants at University of Chicago, Georgia State University, University of Illinois at Chicago, University of Michigan, University of Minnesota, New York University, and Northwestern University. The authors especially wish to thank Mark Finn for his efforts on an earlier versio