Voluntary Disclosure and Investor Sentiment

Abstract

We develop firm-specific voluntary and mandatory disclosure measures using information provided by firms in their 8K filings. Our measures allow for much broader coverage in the time-series and crosssection of firms relative to prior disclosure measures — depending on the prior measure used, we double or triple the sample size. We also show that an 8K-based voluntary disclosure measure subsumes voluntary prior disclosure measures employed (e.g., management forecasts, non-GAAP earnings, conference calls) and captures additional variation. We also document a positive association between our 8K-based voluntary and mandatory disclosure measures and firm characteristics frequently linked to overall firm disclosure. To support the usefulness of our measures, we reexamine the link between voluntary disclosure and investor sentiment, a theoretical relation with mixed empirical results in the literature. We find a negative relation between voluntary disclosure and investor sentiment, consistent with managers increasing disclosure to correct low-sentiment induced mispricing, even after controlling for the level of mandatory disclosure. Consistent with this story, mispricing is corrected more for firms that increase their corporate voluntary disclosure following low sentiment periods.