Supply and Demand for Bellwether Disclosure

Abstract

I examine the economic forces that determine the regularity, frequency, time horizon and information content of bellwether firms' disclosures. On the supply side, bellwether managers have weak incentives to provide disclosures because they assume that investors, supported by the evidence that bellwether stock returns move more upon the release of public macroeconomic announcements than non-bellwether stock returns, can infer the value of bellwether firms from those announcements. On the demand side, there is evidence that large institutional investors' abnormal trading volume is greater around bellwether disclosures than around non-bellwether disclosures, suggesting that sophisticated investors may demand bellwether disclosures more than non-bellwether disclosures because potential timely macroeconomic news in these disclosures help them assess economic trends to optimize their portfolios. Putting these two forces together, I find that bellwether firms, on average, provide relatively fewer disclosures than non-bellwether firms. However, a subset of bellwether firms owned by many institutional investors provide more timely disclosures, indicating that these firms seem to face a greater demand for disclosures. In sum, results in this study suggest that investor demand for bellwether disclosures exists, but that bellwether managerial preferences often dominate.