Disclosure Timing, Information Asymmetry, and Stock Returns: Evidence from 8-K Filing Texts

Using a unique sample of unscheduled disclosures of material corporate events constructed from over 500,000 8-K filings, we find significant heterogeneity in the timeliness of information disclosure, both across and within firms. We first establish disclosure timeliness as an important firm decision affected by event characteristics. We then demonstrate that this timing dimension of information structure has first-order effects on information asymmetry and stock prices. Taking 10 more business days to disclose is associated with an average filing period bid-ask spread ranging from 13.78% to 34.31% wider, compared to an immediate disclosure. Contrary to predictions in existing models, the effect of timeliness on stock returns varies by the type of the event. For good news, longer disclosure lags is associated with significantly lower abnormal returns during the filing period, whereas bad news exhibit the opposite relation. ∗Itay Goldstein is the Joel S. Ehrenkranz Family Professor, Professor of Finance, The Wharton School, University of Pennsylvania, Email: [email protected]. Di Wu is a Ph.D. Candidate of Finance, The Wharton School, University of Pennsylvania, Email: [email protected]. We thank Vincent Glode, Uday Rajan, Amir Yaron, and seminar participants at the Wharton School for their helpful comments and suggestions.