Credit Market Disruptions and Corporate Disclosure

Abstract

This paper investigates the effects of credit market disruptions on corporate voluntary disclosure. Using a shift-share design to construct county-level credit supply shocks, I find that managers of more exposed firms issue more earnings guidance and less capital expenditure guidance. The positive effect on disclosure is more concentrated in investment-grade firms, multi-segment firms, and firms with more dispersed ownership. The negative impact is more pronounced among firms with higher operating uncertainty. Collectively, these findings suggest that firms change their disclosure policies in response to disrupted credit markets due to managers’ desire to alleviate the adverse selection and agency problems and their concern about increased uncertainty.