Geographical Location and Corporate Disclosures

This paper investigates the effect of U.S. firms' geographical location, whether urban or rural, on their corporate disclosure policies. For a comprehensive sample of U.S. firms for the years 1988 to 2004, I find that the quality of reported earnings is better for rural firms as compared to urban firms. Earnings of rural firms exhibit greater ability to predict cash flows, higher response coefficients for stock returns, greater conservatism, and lower probability of small positive values. Also, the increase in the likelihood of issuing voluntary management earnings forecasts with the increase in the magnitude of bad news is greater for rural firms. The difference in such disclosure practices across rural and urban firms is even more pronounced in the periods preceding equity offerings, suggesting that reducing information asymmetry prior to equity offerings is one of the reasons for better quality disclosures by rural firms.