Disclosure and liquidity management: Evidence from regulation fair disclosure |
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| Institution: | 1. Martin J. Whitman School of Management, Syracuse University, 721 University Avenue, Syracuse, NY 13244-2450, United States;2. W.P. Carey School of Business, Arizona State University, BA267C, Tempe, AZ 85287-3606, United States;3. Trulaske College of Business, University of Missouri-Columbia, 303 Cornell Hall, Columbia, MO 65211, United States;4. Accounting and Finance, College of Management, University of Massachusetts-Boston, Boston, MA 02125, United States;1. School of Business Administration, Dongbei University of Finance and Economics, Dalian, China;2. W. P. Carey School of Business, Arizona State University, USA;1. University of Tasmania, Australia;2. Massey University, New Zealand;1. International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu Province 215123, China;2. W. P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;3. Department of Accounting, Monash Business School, Monash University, Caulfield East, Victoria 3145, Australia;4. Department of Accounting, Deakin Business School, Deakin University, Burwood Highway, Burwood, Victoria 3125, Australia;1. Università Cattolica del Sacro Cuore, Via Necchi 7, Milan, Italy;2. Cass Business School, City University London, 106 Bunhill Row, London, UK |
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| Abstract: | We examine the effect of the firm’s information environment on its liquidity policy by exploiting a natural experiment involving Regulation Fair Disclosure (Regulation FD). We find, on average, Regulation FD has a negative impact on firm cash holdings. We also directly evaluate changes in firm disclosure policy and find the negative Regulation FD-cash holdings relation is stronger for firms that increased public disclosure and holds largely for firms that faced lower proprietary costs of public disclosure. Furthermore, we find this negative relation is more pronounced for firms with limited access to the credit market. We capture the medium-term effect of Regulation FD two years before and two years after the implementation. Overall, our results suggest that the change in the amount of information disclosed in response to Regulation FD, an externality effect, affects information asymmetry between firms and outside investors and thus cash holdings. |
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| Keywords: | Liquidity policy Cash holdings Disclosure Regulation FD Information asymmetry Information environment Proprietary cost External funds G18 G32 |
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