Corporate Information Environment Dynamics and Equity Valuation An Analysis of Mandatory disclosures, Voluntary disclosures, and Information Intermediaries

This paper examines the dynamics of a firm's information environment and how the components of the firm's information environment affect equity valuation of the firm. I examine the dynamics of a firm's information environment by investigating the relations among mandatory disclosures (ManDisc), voluntary disclosures (VolDisc), and information generated by information intermediaries (InfoInt). I find that firms with superior ManDisc also have superior VolDisc and superior InfoInt. The positive correlations between the three information channels suggest they are complementary in communicating to investors. I then examine the impact of the three information channels on equity valuation. Specifically, I examine the impact of each information channel on the stock price deviation from the firm's fundamental value, as calculated by the residual income valuation model. In the unconditional tests, I find that all three information channels affect equity valuation. However, in the conditional tests, I find that the disclosure effect of ManDisc on equity valuation disappears when I control for VolDisc and InfoInt. This evidence cautions against drawing inferences exclusively from the evidence of relations between equity valuation and one information channel. All three information channels contribute to a firm's overall information environment.