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Disclosure quantity and the efficiency of price discovery

Author

Listed:
  • Dennis Chung
  • Karel Hrazdil
  • Nattavut Suwanyangyuan

Abstract

Purpose - The purpose of this paper is to investigate the effect of the information disclosure quantity on the pricing efficiency of stocks. Design/methodology/approach - Using a sample of large and actively traded Canadian companies listed on the Toronto Stock Exchange, the authors utilize annual reports filed on system for electronic document analysis and retrieval (SEDAR) between 2003 and 2013 to estimate the amount of publicly available information and find that the length and size of annual reports are important determinants of short-horizon return predictability from historical order flows, which is an inverse indicator of market efficiency. Findings - The results show that longer and larger annual reports are associated with reduced information asymmetry, lower cost of immediacy, higher trading activity, and an overall improvement in the efficiency of price discovery. The results are robust to the inclusion of controls for various determinants of short-horizon return predictability, such as trading costs, volatility, informational effects and other firm-specific characteristics. Research Limitations/implications - Collectively, the findings provide empirical support for the benefits of detailed corporate disclosure in Canada. Originality/value - This is the first study to utilize the short-horizon return predictability approach to evaluate the efficiency of price discovery in relation to the amount of information disclosure.

Suggested Citation

  • Dennis Chung & Karel Hrazdil & Nattavut Suwanyangyuan, 2016. "Disclosure quantity and the efficiency of price discovery," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 15(2), pages 122-143, May.
  • Handle: RePEc:eme:rafpps:v:15:y:2016:i:2:p:122-143
    DOI: 10.1108/RAF-06-2015-0081
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    Citations

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    Cited by:

    1. Vo, Xuan Vinh, 2017. "Do foreign investors improve stock price informativeness in emerging equity markets? Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 42(C), pages 986-991.
    2. Chung, Dennis Y. & Hrazdil, Karel & Novak, Jiri & Suwanyangyuan, Nattavut, 2019. "Does the large amount of information in corporate disclosures hinder or enhance price discovery in the capital market?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 36-52.

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