Events

Prof. Venky Nagar
KPMG Professor of Accounting and Teitelbaum Research Scholar
Ross School of Business, University of Michigan

Investor uncertainty about firm value drives investors' information collection and trading activities, as well as managers' disclosure choices. This study examines an important source of uncertainty that likely cannot be significantly influenced by most individual managers and investors, namely uncertainty about government economic policy. We find that this uncertainty is associated with increased bid-ask spreads and decreased stock price reactions to earnings surprises. Managers respond to this uncertainty by increasing their voluntary disclosures, but these disclosures only partly mitigate the bid-ask spread increase. These findings are consistent across a variety of empirical specifications. We conclude that government economic policy uncertainty is an important component of firms' information environments and managers' voluntary disclosure decisions.