Information Asymmetry Effects of Deregulation-Driven Decreases in Quarterly Financial Disclosure - Evidence from Germany

Abstract

Based on the ongoing disclosure overload debate, this paper investigates how deregulation-driven decreases in quarterly disclosure affect information asymmetry. We exploit a German setting in which the minimum content requirements for quarterly reporting have been reduced for firms listed in the Prime Standard segment of the Frankfurt Stock Exchange (FSE). This deregulation allows Prime Standard companies to choose whether to continue to publish full quarterly financial reports or to switch to so-called quarterly statements to meet their quarterly reporting obligations. Compared to full quarterly reports, the latter have significantly lower minimum content requirements. Based on a difference-in-differences research design, our results provide empirical evidence that decreases in quarterly disclosure come along with statistically and economically significant increases in information asymmetry. However, we find that this effect is particularly driven by smaller firms, which operate in weaker information environments. Additionally, our results confirm that this information asymmetry effect is associated with the extent of actual decreases in (specific content-related types of) quarterly disclosure.