Who Benefits from Voluntary Disclosure? Evidence from Italian Market Microstructure Data

Abstract

Using proprietary market microstructure data of Milan Stock Exchange and strategic plan presentations of Italian firms as disclosure events we explore the distributional effects of voluntary disclosure. We document systematic trading patterns around our disclosure events that on average generate two-month positive abnormal returns of 5.9% for investors trading large shares, while investors trading small shares experience negative abnormal returns of 5.3%. This economically large wealth distribution effect is triggered by large investors increasing their stakes in disclosing firms prior to news arrival irrespective of the nature of the news. Around news arrival, they sell their inventory to small investors in case of bad news. Our findings are particularly pronounced for smaller firms with event-related media coverage, and are consistent with sophisticated investors systematically exploiting attention-based trading behavior of unsophisticated investors triggered by the public dissemination of voluntary disclosure information in the Italian market.