Does information asymmetry affect firm disclosure? Evidence from mergers and acquisitions of financial institutions

In this dissertation, I examine whether information asymmetry among shareholders affects corporate disclosure. Information asymmetry and disclosure are endogenously determined, and the endogenous relation makes the research question challenging.

I use a quasi-exogeneous shock to information asymmetry among shareholders to evaluate the effect of information asymmetry on corporate disclosure. In the post-Regulation FD period, the merger between a shareholder and a lender of the same firm provides a shock to the information asymmetry among equity investors, because Regulation FD applies to shareholders but not lenders. After the merger, the shareholder gains access to the firm-specific private information held by the lender. Using quoted bid-ask spread and effective bid-ask spread as proxies for information asymmetry, I first provide evidence that information asymmetry among shareholders increases after the shareholder-lender mergers. I then use a difference-in-differences research design to show that after shareholder-lender merger transactions, firms issue more quarterly forecasts (including earnings, sales, capital expenditure, EBITDA, and gross margin), and the quarterly earnings forecasts are more precise. This study provides direct empirical evidence that information asymmetry among investors affects corporate disclosure.